54
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
{X}Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended March 30, 1996
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or
{ }Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from o
Commission file Number: 0-14016
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Maxtor Corporation
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(Exact name of registrant as specified in its charter)
Delaware 77-0123732
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
211 River Oaks Parkway, San Jose, CA 95134
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 432-1700 ---------
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: 5.75% Convertible
Subordinated
Debentures,
due 2012
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Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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As of June 28, 1996, 58,208,955 shares of the registrant's Series A
Preferred Stock, $.01 par value, and no shares of the registrant's Common
Stock, $.01 par value, were issued and outstanding, respectively. As of
such date, none of the outstanding shares of Series A Preferred Stock or
Common Stock were held by persons other than affiliates of the registrant,
and there was no public market for the Company's equity securities.
This Annual Report on Form 10-K contains 140 pages of which this is number
1. The Index to Exhibits begins on page 50.
PART I
Item 1. BUSINESS
This report includes a number of forward-looking statements which reflect
the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to
certain
risks and uncertainties, including those discussed in Item 7.
Management's Discussions and Analysis of Financial Condition and Results of
Operations, "General", "-Manufacturing Characteristics," "-Industry
Characteristics" and "Liquidity and Capital Resources", and elsewhere in
this report, that could cause actual results to differ materially from
historical results or those anticipated. In this report, the words
"anticipates," "believes," "expects," "intends," "future" and similar
expressions identify forward-looking statements. Readers are
cautioned not be place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
Maxtor Corporation (Maxtor or the Company) was organized in 1982 and
develops, manufactures and markets mass-storage products for desktop and
mobile computer systems. Products range from 2.5-inch mobile storage
products to 3.5-inch ATA drives for the desktop in capacities up to 2.0
gigabytes.
In November 1994, the Company formed a wholly-owned subsidiary,
IMS International Manufacturing Services, Ltd., whose primary business
was contract manufacturing for electronic original equipment manufacturers
(OEMs). The Company's printed circuit board (PCB) assembly plant in Hong
Kong formed the foundation of the business, and a second plant was added
in Thailand in May 1995. In early June 1996, the Company reorganized
all of the operations under a wholly-owed Delaware subsidiary, International
Manufacturing Services, Inc. (IMS). IMS not only supplies the Company,
but a variety of external customers, with PCB assemblies, sub-assemblies
and fully integrated box-build products. In May 1996, the Company
entered into an agreement to sell a majority interest in IMS to
certain IMS management and other investors (collectively, "Buyer"). At
completion of the transaction in June 1996, the Company received $25
million in cash and $20 million in notes from IMS, and retained a 23.5%
ownership interest in IMS. Pursuant to the Agreements, the Company made
various representations and warranties as to itself and IMS and has agreed
to indemnify Buyer for any breaches thereof. Generally, in the event
that losses from such breaches when aggregated exceed $500,000, Buyer
shall be entitled to indemnification for all losses, including the
first $500,000 up to a maximum total of $17,500,000, provided that
tax and environmental representations are not subject to the liability
limit.
In January 1996, Hyundai Acquisition, Inc. (HAI) acquired by a cash
tender offer for $6.70 per share 32,044,065 shares of the Company's common
stock (the Acquisition). With the 19,480,000 Class A shares already
owned, HAI owned over 90% of the Company's outstanding voting capital. On
January 11,1996, HAI was merged into the Company in a short form merger
(the Merger), and the Company became a wholly owned subsidiary of Hyundai
Electronics America (HEA). Shares of common stock outstanding immediately
prior to the Acquisition and Merger which were not owned by HEA or its
affiliates were converted into the right to receive $6.70 in cash per
share pursuant to the Merger. As the Merger, trading of Maxtor common
stock on the NASDAQ National Market was suspended. Currently, there is
no public market for the Company's equity securities. The Company's
5.75% convertible subordinated Debentures, due 2012, remain publicly
traded.
The Agreement and Plan of Merger was filed as an exhibit to the
Company's Schedule 14D-9, as amended. See the Company's Schedule 14D-9
for further information concerning the tender offer and merger.
In May 1995, the Company entered into a definitive manufacturing
agreement with Hyundai Electronics Industries Company, Limited (HEI).
Under the terms of the agreement, HEI manufactures Maxtor-designed hard
disk drives for the Company at a site in Korea. Production at the Korean
manufacturing site has commenced during the first fiscal quarter of 1997.
PRODUCTS
The Company's financial results continue to be heavily dependent on
the success of certain products. The Company's strategy in part is
focused on accelerating the end-of-life of certain older 3.5-inch desktop
products and replacing them with new 3.5-inch products developed on lower-
cost platforms, and introducing its family of 2.5-inch disk drives
for OEM notebook manufacturers.
Industry Characteristics
Data storage manufacturers continually strive for larger storage
capacities, higher performance and lower cost. Short product life cycles
also increase the importance of the Company's ability to successfully
manage product transitions. During fiscal year 1996, the Company has
successfully managed certain product transitions. However, certain new
products introduced by competitors, as well as those introduced by the
Company, tend to displace older products. The failure to adequately
manage product transitions could result in the loss of market
opportunities, decreased sales of existing products, cancellation of
products or product lines, the accumulation of obsolete and excess
inventory, and unanticipated charges related to obsolete capital equipment.
The Company's ability to anticipate market trends and to successfully
develop, manufacture in volume and sell new products in a timely manner and
at favorable gross margins will be important factors affecting the
Company's future results. There can be no assurance that the Company will
be successful in such efforts.
Desktop Personal Computer Products
The 7000 SeriesTM of 3.5-inch disk drives addresses the demand for
desktop personal computer (PC) disk drives and presently includes a broad
range of capacity points from 541 megabytes (MB) to 2.0 gigabytes
(GB). Current product offerings primarily consist of products which were
introduced
during fiscal year 1996.
The value line of 7000 Series 3.5-inch drives was designed to meet the
needs of the highly price-sensitive entry level to mid-range desktop PC
market. During the fourth quarter of fiscal year 1995, the Company added
the 850MB 7850AV and the 425MB 7425AV disk drives, while phasing out
the initial offerings of the 540MB 7540AV and the 270MB 7270AV. The
7850AV combined the low-cost electronics architecture of previously
introduced 7000 Series value line of drives with the integrated heads,
disks and channel technology developed for the high-end ExcaliburTM
71260A and 71050A products. During the fourth quarter of fiscal year
1996, the Company phased out the value line while ramping shipments of
higher capacity drives which still provide the lowcost initiatives of the
value line.
Another extension to its 7000 Series, the Excalibur Family of products,
is intended to address the high-end PC market's storage-intensive
applications, such as CAD/CAE and multimedia. The 1.2GB Excalibur
71260A and 1.0GB Excalibur 71050A disk drives feature enhanced IDE
interface, allowing the Company's 7000 Series to be used in ATA systems.
During the second quarter of fiscal year 1996, the Company decided to phase
out the Excalibur Family due to pressures from competitors with lower
manufacturing costs and better performing products.
In May 1995, the Company announced the DurangoTM Family of products, the
next extension of the 7000 Series of 3.5-inch disk drives. The Durango
Family of products is available in capacities of 541MBs, 1.0GBs and 1.6GBs.
This family of products offers ATA disk aerial density of 400 M/bits per
square
inch through a refinement of thin film head technology referred to as
proximity recording, which reduces head flying height and improves head/media
interface signal quality. The 1.6GB drive in particular is intended to
meet the increasing storage demands of power-users to fully utilize
Internet services and operate storage-intensive multimedia applications.
The Company commenced volume production of this family of products by the
end of the first quarter of fiscal year 1996.
In the third quarter of fiscal year 1996, the Company began volume
shipments of the latest extension to the 7000 Series which addresses
the growing capacity and cost effective requirements of the PC market.
Initial offerings included the 1.3GB 71336AP/A, 1.6GB 71670AP/A and the
2.0GB 72004AP/A. The drives are ATA/IDE interface compatible and use
the same technological advances developed in the Company's previous
generation of 7000 Series drives. With the 72004AP/A, the Company became
the first disk drive manufacturer to announce volume shipments of a 2.0GB,
three platter, 3.5 inch drive.
During fiscal years 1996, 1995 and 1994, the 7000 Series drives accounted
for 93%, 91% and 67% of the Company's revenue, respectively.
Notebook Computer Products
In June 1996, the Company announced its MobileMax Family of high-capacity
2.5inch disk drives for the portable computer market. Introduced with
capacities of 840MB, 1.01GB, and 1.35GB, these drives meet the
increasing storage requirements of the notebook and sub-notebook computer
market. The Company has successfully reduced the Z-height, or thickness,
of ultra-high capacity 2.5-inch drives from the industry standard 19mm to
just 12.5mm, enabling original equipment manufacturers to design the
next generation of highcapacity notebook and sub-notebook computer systems
that are slimmer, lighter and more powerful. The Company commenced
shipment of this family of products in the first fiscal quarter of 1997.
MARKETING AND CUSTOMERS
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. As the market for
Maxtor's products has become increasingly segmented, diverse sales
channels have developed for different products.
Market demand for the Company's products generally follows the demand
cycles experienced in the personal computer (PC) industry, which
typically rise during the late summer and fall months, peak during the
winter months and drop off in the spring and early summer months of the
calendar year. The Company is currently experiencing weakness in the market
similar to trends occurring in the PC industry. However, market demand is
highly volatile and there can be no assurances that the demand cycle will
follow historical trends.
As a result of volatile business conditions in the PC industry, including
the trend toward consolidation among PC manufacturers, sales to OEMs have
become increasingly important to the success of the disk drive industry
participants. Shipments to OEMs were 61% of revenues in fiscal 1996,
as compared to approximately one-half of revenues in 1995 and 1994. The
Company attributes this growth primarily to the Company's ability to be
among the first to market at the industry's most recent key capacity
points. Although the Company intends to continue in its efforts to
increase its share of the OEM market for disk drives, particularly in the
marketing of its new products, there can be no assurance that the Company
will be successful in such efforts.
Although OEM revenues have increased as a percentage of total
revenues compared to fiscal years 1995 and 1994 as mentioned above, the
Company is still heavily dependent upon the distribution channel.
Distributors generally market the Company's products to value-added
resellers, dealers and small OEMs. Additionally, the Company currently
sells its retail-packaged
products directly and through distributors to major retail computer
superstores, warehouse clubs, dealers, aggregators and catalog houses.
The Company's distributors are located worldwide, and its retailers are
generally located in the United States and Canada. The Company believes
that distributors and retailers are important in supporting a large
aftermarket, and that the market for replacement drives in particular
should result in the growth of retail sales. Sales to distributors and
retailers accounted for approximately 39% of total revenue in fiscal 1996,
and approximately one-half of total revenues in fiscal 1995 and 1994. The
Company's dependence on distributors and retailers is greater than most
other disk drive producers. This dependence subjects the Company to certain
pricing pressures and other factors unique to distribution, including
historically higher levels of product returns compared to the levels of
returns experienced with OEM customers.
During fiscal years 1996 and 1995, no customer accounted for more than 10%
of the Company's revenue. During fiscal year 1994, sales to one
customer accounted for approximately 24% of the Company's revenue.
The Company's export sales represented 41%, 48% and 43% of total revenue
in fiscal years 1996, 1995 and 1994, respectively. Approximately 60%, 53%,
and 53% of export sales were to Europe, while 35%, 38% and 35% of export
sales were to Asia Pacific in fiscal years 1996, 1995 and 1994,
respectively.
For financial data relating to major customers and geographic
information refer to Part II, Item 8, Footnote 4 on page 29.
MANUFACTURING AND SUPPLIERS
The Company has sought to maintain the flexibility necessary to
accommodate the continuous changes in product mix and volume requirements
that result from the short product life cycles characteristic of the disk
drive industry. The Company accomplished this by a relatively low level
of vertical integration and utilizing capital equipment for the manufacture
of multiple product lines.
The Company's disk drive manufacturing operations consist primarily of
the final assembly of high-level subassemblies and testing of completed
products. The Company manufactures disk drive products in volume
production at its manufacturing facility located in Singapore and conducts
all PCB assembly in IMS's facilities in Hong Kong and Thailand. Upon
the sale of a majority interest in IMS, the Company entered into a
manufacturing services agreement with IMS for its PCB assembly parts. In
May 1995, the Company entered into a definitive manufacturing agreement
with Hyundai Electronics Industries Company, Limited (HEI). Under the
terms of the agreement, HEI manufactures Maxtor-designed hard disk
drives for the Company at a site in Korea. Production at the Korean
manufacturing site has commenced during the first fiscal quarter of 1997.
In addition to risks typically associated with the concentration of
vital operations, foreign manufacturing is subject to additional
risks, including changes in governmental policies, transportation delays
and interruptions, and the imposition of tariffs and export controls. A
disruption of manufacturing operations at the Company's facilities could
have an adverse effect on the Company's results of operations and
customer relations.
Pilot production of the Company's products, and cost reduction, quality
and product improvement engineering on current products are conducted
in the Company's Longmont, Colorado facilities. When a new product or
a design change to a current product is ready for volume production, it is
transferred from the Longmont, Colorado facilities to the Company's
Asia Pacific manufacturing facilities.
The Company's manufacturing processes require large volumes of high-
quality components supplied by outside suppliers. The Company periodically
receives communication from vendors that they may be unable to supply
required volumes of certain key components. While the Company has
qualified and continues to qualify multiple sources for many components,
it is reliant on, and
will continue to be reliant on, single sources for many semi-custom and
custom integrated circuits and other key components. Generally, the Company
does not have long-term supply agreements with most of its single source
vendors, some of which are companies with limited financial and operational
resources. In light of current industry conditions, including consolidation of
competitors and decreased demand for hard disk storage products, the
Company is reassessing its requirements for volume components.
The Company intends to continue to pursue qualification of alternative
sources for single source components where practical. However, the Company
believes that it will have to continue to utilize leading edge components
which may only be available from a single source. The Company will
continue to aggressively work with its vendor base to minimize its
component supply exposure. There can be no assurance, however, that
the Company will be successful in such efforts or that in the future the
Company's vendors will meet the Company's needs for required volumes of
high-quality components in a timely and cost effective manner.
The quality and yield of the Company's products is highly dependent on
the Company's ability to obtain high-quality components and sub-
assemblies, and its internal manufacturing processes. In the past, the
Company's operating results have been affected by production delays and
quality problems resulting from its inability to obtain certain key
components and by the failure of certain components to meet requisite
quality standards. The Company has implemented a number of programs to
improve the quality of its key
components and subassemblies, and its internal manufacturing processes. As
a result of these efforts, the Company continues to strive to improve the
quality of its products. The Company believes that it must continue to
focus on product quality to improve its competitive position in the disk
drive industry.
RESEARCH AND DEVELOPMENT
As previously mentioned, the Company participates in an industry that
is characterized by rapid technological change and short product life
cycles. The Company's ability to compete effectively will depend on,
among other things, its ability to anticipate such change. To compete
effectively, the Company has and will continue to devote substantial
resources to developing high-quality products which address the needs of
expanding segments of the disk drive market and which can be produced
in volume on a cost effective basis.
The Company has focused its efforts on developing products that
incorporate components which may be shared by a broad range of products,
thereby reducing the time to develop a product and the cost of
components. The Company believes that the integration of low-cost
manufacturing design into the development of a broad range of the
Company's products, combined with its ability to utilize common platforms
and electronics within product families, will enable the Company to compete
more effectively.
The Company believes that success in developing smaller form
factors, increasing storage capacities, increasing performance and
lowering cost depends in part on developing and incorporating new data
storage technologies into the Company's products. While the Company
believes that it needs to utilize new technologies in order to achieve
technology and product
leadership, to the extent that such development efforts result in
more advanced technology and components, it may be more difficult to
transition disk drives to volume manufacturing or to obtain acceptable
production yields.
In order to effectively implement its product strategy, the Company intends
to continue to make significant investments in R&D. In fiscal years 1996,
1995 and 1994, the Company's R&D expenses amounted to $94.7 million, $60.8
million, and $97.2 million, respectively. The Company believes that it
must continue to make substantial investments in R&D since the timely
introduction and transition to volume production of new products is
essential to its success.
COMPETITION
The Company presently competes primarily with independent manufacturers of
3.5inch disk drives, including Quantum, Seagate Technology and Western
Digital. The Company also competes directly and indirectly with disk drive
divisions of large computer manufacturers such as Fujitsu, Hewlett-Packard,
Hitachi, NEC, Toshiba and IBM. Should other major OEMs develop disk
drive manufacturing capabilities, the demand for the Company's products
could be reduced.
The disk drive industry is experiencing a number of changes that will
affect the competitive position of companies now and in the future. A
number of companies, including Maxtor, have either merged or been
acquired,
thereby reducing the number of competitors in the market. Examples include
not only the Maxtor / HEA Acquisition, but the Seagate / Conner
merger, and the Singapore Technologies acquisition of the disk drive
business of Micropolis. The surviving companies are better positioned
from a market share and financial resources availability perspective.
During 1996, the Company expects that the industry will experience a
turbulent period as the effects of this consolidation takes hold. The
merging of separate product lines and the elimination of duplication could
force a sell off of less profitable product families which could have a
significant impact on financial performance of drive companies. As a
result of the above factors and the effects of weaker seasonal demand,
discussed previously in "Marketing and Customers," the Company has
experienced lower than expected revenues during the first quarter of fiscal
1997. Any change in this trend in the second half of fiscal 1997 is
dependent on stronger OEM PC demand and successful introduction of
new products by the Company. Further, the Company expects this trend to
continue into the foreseeable future. During calendar 1997, the Company
anticipates a higher degree of stability within in the industry as product
families are merged and unprofitable products eliminated. However,
there can be no assurance that the industry will experience a higher
degree of stability and that the Company will be successful in addressing
the issues raised in the new competitive environment.
Short product life cycles also increase the importance of the
Company's ability to successfully manage product transitions. During fiscal
year 1996, the Company successfully managed certain product transitions,
however, certain new products introduced by competitors, as well as those
introduced by the Company, tend to displace older products. The failure
to adequately manage product transitions could result in the loss of
market opportunities, decreased sales of existing products, cancellation
of products or product lines, the accumulation of obsolete and excess
inventory, and unanticipated charges related to obsolete capital
equipment. The Company's ability to anticipate market trends and to
successfully develop, manufacture in volume and sell new products in a
timely manner and at favorable gross margins will be important factors
affecting the Company's future results. There can be no assurance that the
Company will be successful in such efforts.
When competitors introduce products which offer greater capacity,
better performance, lower prices or any combination of these factors, and
when the Company's new products are not brought to market on a timely
basis, the selling price of its older products generally must be reduced
in order to compete effectively with competitors' new products. Due to the
narrowness of the Company's product offerings relative to its competition,
any delay in bringing a product to market will have a more significant
adverse effect on the Company's results of operations than a similar delay
would have on its competitors' results of operations. The Company
expects to continue to experience price erosion for certain products in
fiscal year 1997. There can be no assurance that price erosion will not
increase substantially.
BACKLOG
The Company's sales are primarily made for delivery of standard
products according to standard purchase orders. Delivery dates are
specified
by purchase orders. Such orders may be subject to change or cancellation by
the customer without significant penalties. The quantity actually
purchased, as well as the shipment schedules, therefore, are frequently
revised to reflect changes in the customer's needs. At times when price
competition is intense and price moves are frequent, the Company believes
that most customers may place purchase orders below their projected
needs, or delay placing or even cancel purchase orders with the
expectation that future price reductions may occur. Conversely, at times
when industry-wide production is believed to be insufficient to meet
demand, the Company believes that certain customers may place purchase
orders beyond their projected needs in order to maintain a greater
portion of product allocation. In light of these factors, backlog as of
any particular date may not be indicative of the Company's actual revenues
for any succeeding period, and, therefore, are not material to an
evaluation of the Company's future revenue.
PATENTS AND LICENSES
The Company has been granted approximately 145 U.S. and foreign
patents related to disk drive products and technology. The Company has
additional patents pending in the United States and foreign countries. The
Company has entered into cross-license agreements with certain of its
competitors and has discussed entering into cross-licenses with others.
As in other sectors of the electronics industry, the disk drive industry
has been characterized by significant litigation relating to patent and
other intellectual property rights. Many patents have been issued in the
United States and foreign countries covering disk drive products and
their manufacture. These patents have been issued both to competitors
of
the Company and to parties who are not disk drive vendors. The
Company has received notices from competitors and other patent
holders claiming infringement by the Company and litigation has been
commenced related to one such claim, made by Rodime plc (Rodime) and
described below. There can be no assurance that other litigation will not
be commenced based upon such claims or that additional claims of patent
infringement will not be made against the Company in the future, nor can
there be any assurance that the Company would be able to obtain a
license under the patents asserted or that any such license, if
available, would be offered on terms acceptable to the Company. Adverse
resolution of litigation based upon claims of patent infringement could
subject the Company to substantial liabilities and require the Company to
refrain from manufacturing or selling certain of its products in the
country where the patents were issued.
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, a United Kingdom company, 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
that the assignment would not in any event cover 3.5-inch drives
manufactured and sold by the Company before the acquisition of
MiniScribe's assets. See Legal Proceedings.
WARRANTY AND SERVICE
The Company currently warrants its products against defects in parts and
labor for varying periods from the date of shipment with an additional
three months allowed for distributors to account for "shelf life". All
products currently in production are warranted for a period of 36 months
after shipment.
Products are generally repaired or refurbished by the Company's
Singapore facility. The Company operates a European drive exchange center in
Ireland, a domestic drive exchange center in San Jose, California, and an
Asian drive exchange center in Singapore.
EMPLOYEES
As of June 1, 1996, the Company had approximately 8,940 employees, of
whom approximately 1,180 were located in the United States, 70 in Europe and
7,690 in Asia Pacific.
The Company believes that its future success will depend on its ability
to continue to attract and retain a team of highly motivated and
skilled individuals. None of the Company's employees are represented by
a labor organization. The Company believes that its employee relations are
positive.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES,
AND FINANCIAL INFORMATION
The Company operates in a single industry segment: the
development, manufacture and marketing of data storage products for desktop
and notebook computer systems. It has a worldwide 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. For financial information relating to foreign and domestic
operations and export sales refer to Part II, Item 8, Footnote 4, on page
29.
Item 2. PROPERTIES
During fiscal year 1996, Company's administrative offices were located in
San Jose, California, and its research and development facilities were
located in Longmont, Colorado. These facilities are leased. As of March
30, 1996, the Company's manufacturing facilities include a disk drive
manufacturing facility in Singapore and the IMS PCB assembly facilities in
Hong Kong and Thailand. The Company owns and occupies a 384,000 square-
foot building in Singapore which is situated on land leased through the
year 2016 (subject to an option to renew for an additional 30 years).
All other facilities located in Singapore, Hong Kong and Thailand, as
well as sales offices located in the United States, Europe and Asia
Pacific, are leased.
All of the Company's facilities are well maintained and are suitable for
the advanced technological products and services of the Company.
In May 1996, the Company announced that new research and
development operations have commenced at the San Jose site, requiring
additional space in San Jose. The Company is currently reviewing its
space requirements and intends to move into a larger facility near its
current location during the fiscal year 1997. Other than that previously
discussed, the Company believes that its current facilities are sufficient
to meet its expected requirements.
Item 3. LEGAL PROCEEDINGS
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 litigation between the Company and Rodime was then stayed pending an
appeal by Rodime. In November 1995, the Federal Circuit affirmed the
earlier court decision, and in February 1996, Rodime filed a petition
with the U.S. Supreme Court requesting review of the Federal Circuit's
opinion. The litigation remains stayed pending action by the Supreme Court.
In November 1995, three separate actions (Wacholder v. Gallo, et al.,
Silver v. Maxtor, et al., and Barrington v. Gallo, et al.) were filed in the
Court of Chancery of the State of Delaware, in and for New Castle County.
Each of the foregoing actions generally alleged a breach of fiduciary
duty by the Company's directors in connection with the offer to purchase
the Company by HEA and sought class certification, preliminary and
permanent injunctive relief to prevent the acquisition, and damages and
attorneys' fees. These actions were subsequently consolidated with a
similar California action (Campanella v. Maxtor, et al.). Thereafter,
following negotiations among counsel to parties to the consolidated
action, an agreement in principle for settlement was reached. A
memorandum of understanding was executed by the parties which provided
that in exchange for certain additional disclosures to the Company's
shareholders regarding the circumstances of the tender offer, the
foregoing actions would be settled, subject to completion of confirmatory
discovery, approval by the Court of Chancery, and payment by the Company
of plaintiffs' counsel fees and costs in an amount not to exceed $315,000.
The Company anticipates that settlement documents will be submitted to the
Court of Chancery by the end of June, 1996, and a date for hearing should
be set by late summer 1996.
In March 1996, a pro se complaint was filed in the Southern District of
New York by Morton Berman (Berman v. Maxtor Corporation, et al.). The
complaint alleged certain claims arising out of violation of U.S.
Securities law, Racketeer Influenced Corrupt Organization Act of
1970, and common law doctrines of fraud, negligence and negligent
misrepresentation, against the Company and several former and current
executive officers of the Company. In April 1996, a motion for dismissal was
filed on behalf of the Company andthe other defendants. In June 1996, Berman
filed papers opposing the
motion and the Company replied. Also in June 1996, Berman filed a motion
to amend his complaint and the Company opposed the motion, requesting that
the court defer adjudication of Berman's motion to amend until it ruled
upon the Company's motion to dismiss.
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 claims described above, will not have
a material adverse effect, if any, on the Company's financial position,
results of operations or cash flows.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of the sole stockholder held May 14, 1996, an Amended
and Restated Certificate of Incorporation, Amended and Restated Bylaws, and
the Company's 1996 Stock Option Plan were approved.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
In January 1996, Hyundai Acquisition, Inc. (HAI) acquired by a cash
tender offer for $6.70 per share 32,044,065 shares of the Company's common
stock (the Acquisition). With the 19,480,000 Class A shares already
owned, HAI owned over 90% of the Company's outstanding voting capital.
On January 11, 1996, HAI was merged into the Company in a short form
merger (the Merger), and the Company became a wholly owned subsidiary of
Hyundai Electronics America (HEA). Shares of common stock outstanding
immediately prior to the Acquisition and Merger which were not owned by
HEA or its affiliates were converted into the right to receive $6.70 in
cash per share pursuant to the Merger. As of the Merger, trading of
Maxtor common stock on the NASDAQ National Market
was suspended. Currently, there is no public market for the Company's
equity securities. The Company's 5.75% convertible subordinated
Debentures, due 2012, remain publicly traded.
The Agreement and Plan of Merger was filed as an exhibit to the
Company's Schedule 14D-9, as amended. See the Company's Schedule 14D-9
for
further information concerning the tender offer and merger.
In June 1996, the Company entered into an exchange agreement with HEA
whereby HEA exchanged 600 shares of Common Stock for 58,208,955 shares of
Series
A Preferred Stock, $.01 par value. As of June 28, 1996, 58,208,955 shares
of Series A Preferred Stock and no shares of Common Stock, $.01 par value,
were issued and outstanding.
The price range per common share of the Company's Common Stock through the
date of the Merger is set forth in Item 6 below.
Item 6. SELECTED FINANCIAL INFORMATION (In thousands, except per share
amounts)
ANNUAL
March 30, March 25, March 26, March 27, March 28,
Fiscal year ended 1996 1995 1994 1993 1992
Revenue $1,268,998 $ 906,799 $1,152,615 $1,442,546 $ 1,037,481
Income (loss)
from operations (109,259) (76,026) (247,921) 53,968 12,304
Net income (loss) (122,765) (82,222) (257,589) 46,112 7,149
Net income (loss)
per share
-primary (2.97) (1.63) (8.00) 1.46 0.27
-fully diluted (2.97) (1.63) (8.00) 1.46 0.24
Total assets 442,487 381,847 492,375 579,113 445,182
Long-term debt and capital lease
obligations due
after one year 100,181 101,967 107,393 119,868 110,744
Minority interest - - - - 1,023
- ---------------------------------------------------------------------------
QUARTERLY (Unaudited)
- -----------------------------------------------------------------------------
March 30, Dec. 30, Sept. 30, July 1,
Fiscal quarter ended 1996 1995 1995 1995
- -----------------------------------------------------------------------------
Revenue $ 314,958 $ 356,740 $ 281,406 $ 315,894
Gross margin 12,045 30,740 47 29,861
Net loss (39,817) (24,633) (44,488) (13,827)
Net loss per share (1) (5.41) (0.46) (0.84) (0.27)
Price range per common share (2)
High 6.70(4) 6.5938 6.000 6.9375
Low 6.5938(4) 4.0625 4.125 4.1250
- -----------------------------------------------------------------------------
- ---------------------------------------------------------------------------
March 25, Dec. 24, Sept. 24, June 25,
Fiscal quarter ended 1995 1994 1994 1994
- ---------------------------------------------------------------------------
Revenue $ 275,947 $ 238,174 $ 174,368 $ 218,310
Gross margin 27,474 21,328 (16,696) 24,024
Net income (loss) 1,119(3) (16,435) (54,717) (12,189)
Net income (loss) per
share (1) 0.02 (0.32) (1.09) (0.24)
Price range per common
share (2)
High 6.3125 5.75 5.5000 7.8750
Low 4.0625 3.25 4.3125 4.6875
- -----------------------------------------------------------------------------
(1) Primary net income (loss) per share is the same as fully diluted net
income (loss) per share.
(2) Price range is based on the quarterly high and low closing prices as
quoted from NASDAQ.
(3) Net income included non-recurring income of approximately $10.2 million
primarily related to the gain on the sale of the Company's interest in
Maxoptix Corporation.
(4) Since the January 11, 1996 Merger with HEA described above, there is no
public market for the Company's common stock.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
General
Since its inception in 1982, the Company has been subject to the
highly cyclical nature of the disk drive industry. The industry is subject
to rapid technological change and short product life cycles. The industry
is intensely competitive and significant price erosion is typical during a
product life cycle. At times, the industry is subject to excess
production capacity and component cost pressures as a result of
key component shortages. Specifically, with the overall growth
experienced by the disk drive industry in fiscal 1996 and 1995, shortages
of certain key components for the industry have increased. In addition to
being impacted by these industry factors, the Company has been less
successful in the past several years than its competitors in
managing product transitions and has been unable to bring certain
products to market in a timely and cost effective manner. Further,
many of the Company's competitors have had broader product lines than
the Company with which to compete in this environment.
As a result of the factors discussed above and others, the Company
has incurred operating losses during each of the last thirteen consecutive
fiscal quarters, including the fourth quarter of fiscal year 1995 for
which the Company reported net income of approximately $1.1 million as a
result of a nonrecurring gain of approximately $10 million from the sale of
the Company's interest in Maxoptix Corporation. Primarily as a result of
continuing pricing pressures, serious shortages of certain key components,
product cost and timeto-market issues with regard to certain products,
the Company was not profitable during fiscal year 1996.
Industry Characteristics
Data storage manufacturers continually strive for larger storage
capacities, higher performance and lower cost. Short product life cycles
also increase the importance of the Company's ability to successfully
manage product transitions. During fiscal year 1996, the Company has
successfully managed certain product transitions. However, certain new
products introduced by competitors, as well as those introduced by the
Company, tend to displace older products. The failure to adequately
manage product transitions could result in the loss of market
opportunities, decreased sales of existing products, cancellation of
products or product lines, the accumulation of obsolete and excess
inventory, and unanticipated charges related to
obsolete capital equipment. The Company's ability to anticipate market
trends and to successfully develop, manufacture in volume and sell new
products in a timely manner and at favorable gross margins will be
important factors affecting the Company's future results. There can be no
assurance that the Company will be successful in such efforts.
When competitors introduce products which offer greater capacity,
better performance, lower prices or any combination of these factors, and
when the Company's new products are not brought to market on a timely
basis, the selling price of its older products generally must be reduced
in order to compete effectively with competitors' new products.
Also due to the narrowness of the Company's product offerings relative to
its competition,
any delay in bringing a product to market will have a more significant
adverse effect on the Company's results of operations than a similar delay
would have on its competitors' results of operations. The Company
continues to
experience price erosion for certain products in fiscal year 1997. There
can be no assurance that price erosion will not increase substantially.
Manufacturing Characteristics
The Company's manufacturing processes require large volumes of high-
quality components supplied by outside suppliers. The Company periodically
receives communication from vendors that they may be unable to supply
required volumes of certain key components. While the Company has
qualified and continues to qualify multiple sources for many components,
it is reliant on, and will continue to be reliant on, single sources
for many semi-custom and custom integrated circuits and other key
components. Generally, the Company does not have long-term supply
contracts with most of its single source vendors, some of which are
companies with limited financial and operational resources.
In light of current industry conditions, including consolidation of
competitors and decreased demand for hard disk storage products, the
Company is reassessing its requirements for volume components.
The Company intends to continue to pursue qualification of alternative
sources for single source components where practical. However, the Company
believes that it will have to continue to utilize leading edge components
which may only be available from a single source. The Company will
continue to aggressively work with its vendor base to minimize its
component supply exposure. There can be no assurance, however, that
the Company will be successful in such efforts or that in the future the
Company's vendors will meet the Company's needs for required volumes of
high-quality components in a timely and cost effective manner.
The quality and yield of the Company's products is highly dependent on
the Company's ability to obtain high-quality components and sub-
assemblies, and its internal manufacturing processes. In the past, the
Company's operating results have been affected by production delays and
quality problems resulting from its inability to obtain certain key
components and by the failure of certain components to meet requisite
quality standards. The Company has implemented a number of programs to
improve the quality of its key components and subassemblies, and its
internal manufacturing processes. As a result of these efforts, the
Company continues to strive to improve the quality of its products. The
Company believes that it must continue to focus on product quality to
improve its competitive position in the disk drive industry. However,
there can be no assurance that the Company will be successful in
improving or maintaining its current quality standards.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Revenue and Gross Margin
- -----------------------------------------------------------------------
(In millions) March 30, March 25,
Fiscal year ended 1996 1995 Change
- -----------------------------------------------------------------------
Revenue $ 1,269.0 $ 906.8 $ 362.2
Gross margin $ 72.7 $ 56.1 $ 16.6
As a percentage of revenue 5.7% 6.2%
Net loss $ (122.8) $ (82.2) $ (40.6)
Net loss per share $ (2.97) $ (1.63) $ (1.34)
- -------------------------------------------------------------------------
Revenue for fiscal year 1996 increased by 39.9% from the prior fiscal
year primarily due to an increase in unit shipments of approximately 30%
and a shift in product mix to higher-capacity product offerings which
had higher average unit selling prices.
During fiscal year 1996 and 1995, the Company did not have any customer
which accounted for 10% or greater of the Company's revenue.
Gross margin as a percentage of revenue decreased to 5.7% for fiscal year
1996 from 6.2% for fiscal year 1995. Although the shift of the Company's
products sold was toward the higher capacity products which generally
have higher average selling prices per unit, the increase in margins which
resulted from this shift was more than offset by intense pricing pressures
on certain lower capacity products without corresponding decreases in
manufacturing costs. In addition, the Company had lower than expected
volumes during fiscal 1996 due to shortages of certain key components,
contributing to higher than expected manufacturing costs.
The Company will continue its efforts to reduce its average unit
manufacturing costs. However, there can be no assurance that average unit
selling prices will not decline at a more rapid rate or that the Company
will be successful in its efforts to improve gross margin. In addition,
given the cyclical nature of the disk drive industry and the Company's
dependence on the success of certain products, as discussed earlier, there
can be no assurance that the Company will be able to improve or maintain its
current gross margin.
Operating expenses
- -----------------------------------------------------------------------
(In millions) March 30, March 25,
Fiscal year ended 1996 1995 Change
- -----------------------------------------------------------------------
Research and development $ 94.7 $ 60.8 $ 33.9
As a percentage of revenue 7.5% 6.7%
Selling, general and
administrative $ 82.8 $ 81.6 $ 1.2
As a percentage of revenue 6.5% 9.0%
Restructuring and other $ 4.5 $ (10.2) $ 14.7
As a percentage of revenue 0.4% (1.1%)
- -----------------------------------------------------------------------
Research and development (R&D) expenses increased in fiscal 1996 from
the prior fiscal year primarily due to the Company's continued commitment to
make substantial investments in R&D since the timely introduction and
transition to volume production of new products is essential to its
future success. Spending increased primarily in areas related to
staffing and engineering tooling needed for the development of new
products.
Selling, general and administrative (SG&A) expenses decreased as a
percentage of revenue in fiscal year 1996 as compared to 1995 primarily
due to the increase in the revenue base and the Company's ongoing effort
to control costs and expenditures. SG&A spending in absolute dollars
increased slightly primarily as a result of increased marketing costs.
The Company's
ongoing efforts to control costs and expenditures will continue into future
quarters, however, there can be no assurance that the Company will be
successful in such efforts.
Restructuring and other expenses increased during fiscal year 1996 compared
to the previous fiscal year due to two events. First, during the fourth
quarter of fiscal 1996, restructuring and other expenses of $4,500,000 were
primarily due to professional fees incurred related to the acquisition of
the Company by HEA. Effective January 1996, HEA acquired by a cash tender
offer of $6.70 per share all of the outstanding shares of the Company's
common stock which were not owned by HEA or its affiliates and the
Company became a wholly owned subsidiary of HEA. Second, the Company
recorded a gain of approximately $10.0 million, offsetting restructuring and
other expenses during the third quarter of fiscal year 1995, when 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
Corporation (Kubota). Prior to the sale, Maxtor and Kubota owned 67% and
33% interests in Maxoptix, respectively. The transaction was completed
during the fourth quarter of fiscal year 1995.
At March 30, 1996, the Company had no significant accrued
restructuring charges remaining relating to the restructuring activities
which commenced in the third quarter of fiscal year 1994. On March 25,
1995, the Company had $502,000 of accrued restructuring charges
remaining related to recurring payments under certain non-
cancelable operating leases which were
substantially paid during fiscal year 1996.
Interest expense and interest income
- -----------------------------------------------------------------------
(In millions) March 30, March 25,
Fiscal year ended 1996 1995 Change
- ------------------------------------------------------------------------
Interest expense $ 11.8 $ 8.4 $ 3.4
Interest income $ 1.2 $ 4.2 $ (3.0)
- ------------------------------------------------------------------------
Interest expense increased by 40.5% in fiscal year 1996 as compared to
fiscal year 1995, even though the average interest rate incurred on total
borrowings decreased, due to a substantial increase in short-term borrowings
required in order to fund the Company's operations. The Company had
$96 million of borrowings on the $100 million unsecured, revolving line of
credit arranged by Citicorp Securities Inc. outstanding as of March 30,
1996, and expects to maintain approximately the same or higher levels of
borrowings during the next fiscal year.
In December 1995, the Company also entered into a $100 secured
bridge financing facility with HEA. As of March 30, 1996, $65 million of
borrowings were outstanding under this facility. Interest income
decreased in fiscal year 1996 due to the lack of available cash for
investing purposes.
Provision for income taxes
- -----------------------------------------------------------------------
(In millions) March 30, March 25,
Fiscal year ended 1996 1995 Change
- -----------------------------------------------------------------------
Provision for income taxes $ 2.8 $ 2.0 $ 0.8
- -----------------------------------------------------------------------
The provision for income taxes consists primarily of foreign taxes.
The Company's effective tax rate for fiscal years 1996 and 1995 differs
from the combined federal and state rates due to the repatriation of
foreign earnings absorbed by current year losses, and the Company's U.S.
operating losses
not providing current tax benefits, offset in part by the tax savings
associated with the Company's Singapore operations and valuation
of temporary differences. Income from the Singapore and Thailand
operations is not taxable in Singapore or Thailand, as a result of the
Company's pioneer tax status in both locations.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Revenue and Gross Margin
- ------------------------------------------------------------------------
(In millions) March 25, March 26,
Fiscal year ended 1995 1994 Change
- -----------------------------------------------------------------------
Revenue $ 906.8 $ 1,152.6 $ (245.8)
Gross margin $ 56.1 $ (52.4) $ 108.5
As a percentage of revenue 6.2% (4.5%)
Net income (loss) $ (82.2) $ (257.6) $ 175.4
Net income (loss) per share $ (1.63) $ (8.00) $ 6.37
- ------------------------------------------------------------------------
Revenue for fiscal year 1995 decreased by 21.3% from the prior fiscal
year generally as a result of competitive pricing pressures, offset in part
by an increase in unit volumes and a shift in product mix to higher-
capacity product offerings. Average unit selling prices, in terms of
megabyte per dollar, dropped substantially during fiscal year 1995. The
rate of sequential quarter-to-quarter decline in average unit selling
prices ranged
from approximately 15% - 20% for the first two quarters of fiscal year
1995, to less than 10% for the third quarter of fiscal year 1995, and
intensified again during the fourth quarter of fiscal year 1995 to
approximately 15%. Unit volumes increased modestly during fiscal year
1995 with the most significant growth occurring during the second half of
the fiscal year.
During fiscal year 1995, the Company did not have any customer which
accounted for 10% or greater of the Company's revenue. During fiscal year
1994, the Company had one customer which accounted for approximately
24% of the Company's revenue.
Gross margin as a percentage of revenue increased to 6.2% for fiscal year
1995 from (4.5%) for fiscal year 1994. During fiscal year 1994, the
Company recorded special charges amounting to $68.9 million in Cost
of Revenue consisting 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. Excluding the special
charges of $68.9 million, gross margin for fiscal year 1994 was 1.4%.
The increase in gross margin for fiscal year 1995 as compared to the
prior fiscal year, excluding special charges of $68.9 million, was
primarily attributable to a shift in product mix to higher-capacity,
higher-margin products and a modest increase in unit volume, offset in part
by competitive pricing pressures. The increase in gross margin also is
the result of the Company's decision in the third quarter of the
prior fiscal year to discontinue certain unprofitable products.
During the first half of fiscal year 1995, product mix was primarily
comprised of the Company's older, lower-capacity products which were nearing
end-of-life and generally contributing at a zero gross margin. The
Company's product mix for the second half of fiscal year 1995 primarily was
comprised of its valueline 7000 Series one-inch drives which were developed
on a lower-cost platform and, to a lesser extent, the new, higher-capacity,
higher-margin, 850
megabyte - 1.2 gigabyte drives shipped in volume during the fourth quarter.
In part
offsetting the improvement in gross margin, the Company recorded a charge
of $6.4 million to Cost of Revenue during the fourth quarter of fiscal year
1995 for the write down of inventory and fixed assets, and expensing
certain commitments to third parties associated with the Company's 1.8-
inch product line. The charge resulted from the Company's decision
during the fourth quarter of fiscal year 1995 to discontinue
manufacturing and curtail development efforts related to this particular
product line in favor of mainstream disk drive products with stronger
market and revenue potential.
Operating expenses
- -----------------------------------------------------------------------
(In millions) March 25, March 26,
Fiscal year ended 1995 1994 Change
- -----------------------------------------------------------------------
Research and development $ 60.8 $ 97.2 $ (36.4)
As a percentage of revenue 6.7% 8.4%
Selling, general and
administrative $ 81.6 $ 78.9 $ 2.7
As a percentage of revenue 9.0% 6.8%
Restructuring and other $ (10.2) 19.5 $ (29.7)
As a percentage of revenue (1.1%) 1.7%
- -----------------------------------------------------------------------
Research and development (R&D) expenses decreased from the prior fiscal
year primarily due to the consolidation of the Company's R&D
activities in Longmont, Colorado during the fourth quarter of fiscal year
1994 in connection with the Company's restructuring plan. This
consolidation eliminated the need for certain facilities in San Jose,
California, and also resulted in a substantial reduction in headcount
associated with R&D and related activities previously conducted in San
Jose.
Selling, general and administrative (SG&A) expenses increased as a
percentage of revenue in fiscal year 1995 compared to the prior fiscal year
primarily due to the decline in the revenue base. SG&A spending in
absolute dollars increased modestly as a result of higher advertising costs
and an increase in bad debt expense, offset in part by lower general and
administrative costs, particularly headcount related, as a result of the
Company's restructuring plan initiated during fiscal year 1994.
Restructuring and other: During the third quarter of fiscal year 1995
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 Corporation (Kubota). Prior to
the sale, Maxtor and Kubota owned 67% and 33% interests in Maxoptix,
respectively. The transaction was completed during the fourth quarter of
fiscal year 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.
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 were
substantially completed related to the $68.9 million special charges. As of
March 30, 1996, no amounts remained accrued for payments related to these
special charges.
The Company recorded a restructuring charge of $19.5 million in the
third quarter of fiscal year 1994. The restructuring plan provided
for the consolidation and streamlining of certain operations and
administration. 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 completed all of its restructuring
actions related to the $19.5 million restructuring charges taken in fiscal
1994. 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 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, total actual 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 30,
1996:
Severances, Rent and other
benefits and facilitiesother headcount-
related
(In thousands) related charges charges Total
- ----------------------------------------------------------------------
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
- -----------------------------------------------------------------------
Cash expenditures (502) (502)
Adjustments - - -
- ----------------------------------------------------------------------
Balance at March 30, 1996 $ - $ - $ -
- -----------------------------------------------------------------------
Interest expense, interest income, and minority interest in loss of
joint venture
- ----------------------------------------------------------------------
(In millions) March 25, March 26,
Fiscal year ended 1995 1994 Change
- -----------------------------------------------------------------------
Interest expense $ 8.4 $ 10.1 $ (1.7)
Interest income $ 4.2 $ 2.3 $ 1.9
- -----------------------------------------------------------------------
Interest expense decreased as a result of lower average borrowings
outstanding during fiscal year 1995 as compared to the prior fiscal year.
Interest income increased as a result of higher cash and short-term
investments balances during fiscal year 1995 as compared to the prior
fiscal year.
Provision for income taxes
- -----------------------------------------------------------------------
(In millions) March 25, March 26,
Fiscal year ended 1995 1994 Change
- -----------------------------------------------------------------------
Provision for income taxes $ 2.0 $ 1.9 $ 0.1
- -----------------------------------------------------------------------
The provision for income taxes consists primarily of foreign taxes.
The Company's effective tax rate for fiscal year 1995 differs from the
combined federal and state rate due to the repatriation of foreign earnings
absorbed by current year losses and the Company's U.S. operating losses
not providing current tax benefits, offset in part by the tax savings
associated with the Company's Singapore operations and valuation of
temporary differences. Income from the Singapore operations is not taxable
in Singapore as a result of the Company's pioneer tax status. The
Company's effective tax rate for fiscal year 1994 is below the combined
federal and state rate due to the repatriation of foreign earnings
absorbed by current year losses, the Company's U.S. operating losses not
providing current tax benefits and valuation of temporary differences,
offset in part by the tax savings associated with the Company's Singapore
operations.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
March 30,
(In millions) 1996
- ----------------------------------------------------
Cash and cash equivalents $ 52.8
Short-term borrowings 110.6
Net cash used in operating activities 132.8
Net cash used in investing activities 61.2
Net cash provided by financing activities 150.3
- -----------------------------------------------------
As of March 30, 1996, the Company had cash and cash equivalents of
$52.8 million as compared to $96.5 million as of March 25, 1995, a decrease
of $43.7 million. The Company had no short-term investments as of March
30, 1996 as compared to $12.0 million as of March 25, 1995, a decrease of
$12.0 million. The combined decrease in the Company's cash and cash
equivalents, and shortterm investments of $55.7 million was primarily
the result of operating losses.
Net cash used in operating activities during fiscal year 1996 was
primarily attributable to the net loss less non-cash depreciation and
amortization totaling approximately $77.6 million and an increase in
inventory of
$66.3 million. Inventories increased by $66.3 million in fiscal 1996 as
compared to fiscal 1995 as a result of year end raw materials purchases in
anticipation of shortages of certain key components in order to meet the
first fiscal quarter 1997 build demands and the product mix of finished
goods moving from lower capacity, lower cost products to higher capacity,
higher cost products.
Net cash used in investing activities during the fiscal year 1996
was primarily attributable to $72.7 million of capital expenditures offset
in part by $12.0 million in proceeds from short-term investments. A
majority of the capital expenditures activity related to the acquisition of
manufacturing and engineering equipment to develop new products and enhance
the productivity of the Singapore manufacturing facility.
Net cash provided by financing activities during the fiscal 1996
primarily reflects $145.6 million in net proceeds from short-term
borrowings, drawn under available credit lines and $7.7 million common
stock issued under the Company's stock purchase and stock option plans.
On August 31, 1995, the Company established a $100 million
unsecured, revolving line of credit through Citicorp Securities Inc. and
syndicated among ten banks, which is guaranteed by Hyundai Electronics
Industries Co., Ltd. (HEI). This $100 million line of credit is a 364-
day committed facility, renewable annually up to three years, that is
used primarily for general operating purposes. As of March 30, 1996, $96
million of borrowings and $1 million in letters of credit were
outstanding.
On December 29, 1995, the Company established a $100 million secured
bridge financing facility with HEA to provide additional working capital
financing through the Merger transition period. This credit facility
provided for draw downs up to $100 million and had a first priority
secured interest in all of the Company's accounts receivable. As of
March 30, 1996, $65 million of borrowings were outstanding under this
facility. All outstanding principal and accrued interest was due and paid
on April 10, 1996.
On January 31, 1996, the Company signed a one year credit facility in
the amount of $13.8 million to be used for capital equipment requirements
at the Singapore facility. This credit facility is guaranteed by HEI
and all outstanding amounts of principal and accrued interest are due and
payable on February 2, 1997.
On March 30, 1996, the Company entered into an accounts
receivable securitization program with Citicorp Securities, Inc. Under this
program, the Company may make a repeating cumulative sale of its qualified
trade accounts receivable up to $100 million on a non-recourse basis. The
proceeds from the sale of these receivables received on April 10, 1996 were
used to pay down the entire secured bridge financing facility on that date,
as described above.
On April 10, 1996, the Company obtained a new $100 million intercompany
line of credit from HEA. This line of credit allows for draw downs up
to $100 million and interest is payable quarterly. All outstanding
amounts of principal and accrued interest are due and payable on April 10,
1997. As of June 28, 1996, $65 million was outstanding.
In June 1996, the Company entered into a volume purchase agreement with
a supplier to build certain key components. Under the terms of this
agreement, the Company has agreed to advance up to $20 million to the
supplier, by December 31, 1996, to finance purchases of certain
equipment required to manufacture product volumes as committed under this
agreement. Such advances will be repaid to the Company in the form of
price discounts and are secured by the equipment purchased.
The liquidity of the Company was adversely affected during fiscal year 1996
by significant losses from operations and liquidity has been
significantly reduced compared to the same period last year. The Company
is implementing ongoing measures with the goal of improving liquidity.
In addition to attempting to improve operating margins on product
sales throughthe introduction of new products and reduction of manufacturing
costs, the
Company remains focused on controlling other operating expenses. However,
the Company believes that it must continue to make substantial investments
in R&D since the timely introduction and transition to volume production
of new products is essential to its future success.
The Company expects that it will require alternative sources of
liquidity, including additional sources of financing in fiscal 1997.
The Company recognizes that given the uncertainties of the disk drive
industry and the risks inherent in accomplishing the above measures, or if
the results of those measures do not meet expectations, it may be
prudent to seek additional sources of financing. The Company is
engaged in ongoing discussions with various parties, including HEI,
HEA and certain financial institutions regarding additional sources of
financing. While the Company believes that additional sources of
financing will be available, there can be no assurance that financing will
be available on terms which are favorable to the Company.
Subject to unforeseen changes in general business conditions, the
Company believes that the combination of the measures described above
and other available actions, together with its balances of cash and cash
equivalents, expected cash flow from operations, equipment financing and
line of credit borrowing capabilities (supported by HEA) will be
sufficient to fund the Company's working capital and capital expenditure
requirements through fiscal year 1997.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. The
Company does not anticipate paying cash dividends in the near future. Under
the terms of the Company's lines of credit facilities, the Company may not
declare or pay any dividends without the prior consent of its lenders.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements Page
Financial Statements:
Consolidated Balance Sheets - March 30, 1996 and March 25, 1995 22
Consolidated Statements of Operations - Fiscal years ended
March 30, 1996, March 25, 1995 and March 26, 1994 23
Consolidated Statements of Stockholders' Equity (Deficit)
- Fiscal years ended March 30, 1996, March 25, 1995 and
March 26, 1994 24
Consolidated Statements of Cash Flows - Fiscal years ended
March 30, 1996, March 25, 1995 and March 26, 1994 25 - 26
Notes to Consolidated Financial Statements 27 - 37
Report of Ernst & Young LLP, Independent Auditors 38
Financial Statement Schedules:
The following consolidated financial statement schedule of
Maxtor Corporation is filed as part of this Report and should be read
in conjunction with the Consolidated Financial Statements of Maxtor
Corporation.
Schedule II Valuation and qualifying accounts S-1
Schedules not listed above have been omitted since they are not applicable
or are not required or the information required to be set
therein is included in the Consolidated Financial Statements or notes
thereto.
MAXTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
- -----------------------------------------------------------------------------
March 30, March 25,
ASSETS 1996 1995
- ---------------------------------------------------------------------------
- -Current assets:
Cash and cash equivalents $ 52,794 $ 96,518
Short-term investments - 11,998
Accounts receivable, net of allowance
for doubtful accounts of $5,196 at
March 30, 1996 and $3,850 at
March 25, 1995 121,818 109,333
Accounts receivable from affiliates 4,426 2,197
Inventories:
Raw materials 76,505 40,528
Work-in-process 37,614 28,398
Finished goods 41,816 20,754
- ---------------------------------------------------------------------------
155,935 89,680
Prepaid expenses and other 11,642 8,695
- ---------------------------------------------------------------------------
Total current assets 346,615 318,421
Property, plant and equipment, at cost:
Buildings 24,984 22,575
Machinery and equipment 192,115 146,020
Furniture and fixtures 14,118 12,177
Leasehold improvements 13,870 9,262
- ---------------------------------------------------------------------------
245,087 190,034
Less accumulated depreciation and
amortization (156,925) (133,890)
- ---------------------------------------------------------------------------
Net property, plant and equipment 88,162 56,144
Other assets 7,710 7,282
- ---------------------------------------------------------------------------
$ 442,487 $ 381,847
- ---------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------------------------------------
Current liabilities:
Short-term borrowings $ 110,595 $ 30,000
Short-term borrowings due to affiliates 65,000 -
Accounts payable 160,102 136,746
Accounts payable to affiliates 8,656 -
Income taxes payable 7,499 6,807
Accrued payroll and payroll-related expenses 16,727 14,802
Accrued warranty 23,751 25,058
Accrued expenses 18,934 19,607
Long-term debt and capital lease
obligations due within one year 1,879 2,957
- ------------------------------------------------------------------------
Total current liabilities 413,143 235,977
Long-term debt and capital lease obligations
due after one year 100,181 101,967
Deferred tax liabilities 300 -
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, no
authorized, issued, or outstanding shares in 1996; (19,480,000
authorized, issued
and outstanding in 1995) - 195
Common stock, $0.01 par value, 200,000,000
shares authorized; 600 shares issued and outstanding in 1996;
(180,520,000 shares
authorized; 32,217,287 issued and
outstanding in 1995) - 322
Additional paid-in capital 335,599 327,357
Accumulated deficit (406,736) (283,971)
- -------------------------------------------------------------------------
Total stockholders' equity (deficit) (71,137) 43,903
- ------------------------------------------------------------------------
$ 442,487 $ 381,847
- ------------------------------------------------------------------------
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Fiscal year ended
- ----------------------------------------------------------------------------
March 30, March 25, March 26,
1996 1995 1994
- ----------------------------------------------------------------------------
Revenue $ 1,264,627 $ 889,288 $ 1,145,639
Revenue from affiliates 4,371 17,511 6,976
- -----------------------------------------------------------------------------
Total revenue 1,268,998 906,799 1,152,615
- -----------------------------------------------------------------------------
Cost of revenue 1,192,403 835,037 1,198,787
Cost of revenue from affiliates 3,902 15,632 6,227
- ---------------------------------------------------------------------------
Total cost of revenue 1,196,305 850,669 1,205,014
- -----------------------------------------------------------------------------
Gross margin 72,693 56,130 (52,399)
- ---------------------------------------------------------------------------
Operating expenses:
Research and development 94,717 60,769 97,168
Selling, general and
administrative 82,775 81,600 78,854
Restructuring and other 4,460 (10,213) 19,500
- ---------------------------------------------------------------------------
Total operating expenses 181,952 132,156 195,522
- ---------------------------------------------------------------------------
- -Loss from operations (109,259) (76,026) (247,921)
Interest expense (11,849) (8,379) (10,087)
Interest income 1,169 4,216 2,283
- ---------------------------------------------------------------------------
- -Loss before income taxes (119,939) (80,189) (255,725)
Provision for income taxes 2,826 2,033 1,864
- ---------------------------------------------------------------------------
Net loss $ (122,765) $ (82,222) $ (257,589)
- ---------------------------------------------------------------------------
Net loss per share $ (2.97) $ (1.63) $ (8.00)
- ---------------------------------------------------------------------------
Shares used in computing net
loss per share 41,354 50,583 32,203
- ---------------------------------------------------------------------------
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
- -----------------------------------------------------------------------------
Retained Notes Total
Common stock Additional earnings receivable
stockholders'
--------------- paid-in (accumulated from
equity
Shares Amount capital deficit) stockholders
(deficit)
- ----------------------------------------------------------------------------
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
Issuance of common
stock under stock
option plans 1,134,805 11 4,734 - - 4,745
Issuance of common
stock under stock
purchase plan 800,426 8 2,972 - - 2,980
Shares canceled
resulting from
acquisition
by HEA (53,631,918) (536) 536 - - -
Net loss - - - (122,765) - (122,765)
- ---------------------------------------------------------------------------
Balance,
March 30, 1996 600 $ - $335,599 $(406,736) $ - $ (71,137)
- ---------------------------------------------------------------------------
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal year ended
----------------------------------------------------------------------------
March 30, March 25, March
26, 1996 1995
1994
- ---------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents
Cash flows from operating activities:
Net loss $ (122,765) $ (82,222) $ (257,589)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 45,200 34,865 85,865
Forgiveness of notes receivable
from stockholders - 41 61
Change in non-current deferred
tax liabilities 300 (66) (934)
Gain on sale of interest in joint
venture - (10,005) -
Loss on disposal of property, plant
and equipment 669 2,233 2,135
Changes in assets and liabilities:
Accounts receivable (12,485) (16,366) 49,591
Accounts receivable from
affiliates (2,229) (2,197) -
Inventories (66,255) (150) 59,320
Prepaid expenses and other (2,947) (925) 2,739
Accounts payable 18,407 14,813 7,374
Accounts payable to affiliates 8,656 - -
Income taxes payable 692 (723) 2,866
Accrued payroll and
payroll-related expenses 1,925 3,573 (4,796)
Accrued warranty (1,307) (1,637) 11,192
Accrued expenses (673) (21,425) 25,724
- ---------------------------------------------------------------------------
Total adjustments (10,047) 2,031 241,137
- ---------------------------------------------------------------------------
Net cash used in operating
activities (132,812) (80,191) (16,452)
- ---------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of interest in
joint venture, net - (1,463) -
Purchase of available-for-sale
investments - (30,091) (74,911)
Proceeds from maturities of
available-for-sale investments 11,998 93,004 -
Purchase of property, plant and
equipment, net (72,655) (32,612) (29,746)
Proceeds from disposal of property,
plant and equipment 353 1,077 1,013
Other assets (928) (417) (72)
- ---------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (61,232) 29,498 (103,716)
- ---------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of debt,
including short-term borrowings 145,595 238 2,870
Principal payments on debt,
including capital lease obligations (3,000) (4,444) (30,563)
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 7,725 6,810 7,685
Payments on notes receivable
from stockholders - 87 29
- ---------------------------------------------------------------------------
Net cash provided by financing
activities 150,320 2,691 129,364
- ---------------------------------------------------------------------------
Net change in cash and cash
equivalents (43,724) (48,002) 9,196
Cash and cash equivalents at
beginning of period 96,518 144,520 135,324
- ---------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 52,794 $ 96,518 $ 144,520
- ---------------------------------------------------------------------------
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(In thousands)
Fiscal year ended
- -----------------------------------------------------------------------------
March 30, March 25, March 26,
1996 1995 1994
- ---------------------------------------------------------------------------
Supplemental disclosures of cash flow
information:
Cash paid (received) during the year for:
Interest $ 9,362 $ 6,657 $ 9,985
Income taxes 1,801 2,822 1,337
Income tax refunds (3,173) (65) (1,824)
Supplemental information on noncash
investing and financing activities:
Capital lease obligations $ 136 $ 245 $ 122
Purchase of property, plant and
equipment financed by accounts payable 4,949 - -
- ----------------------------------------------------------------------------
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Maxtor Corporation operates as a wholly-owned
subsidiary of Hyundai Electronics America (HEA).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
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
The Company accounts for income taxes in accordance with the Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS No. 109).
Net 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
1996, 1995 and 1994.
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 loss. Approximately $1,086,000, $1,014,000, and
$865,000 of net foreign exchange losses were included in net loss in fiscal
years 1996, 1995, and 1994, 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 on the foreign currency forward
contracts 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 year 1996
was comprised of 53 weeks. Fiscal years 1995 and 1994 were each comprised
of 52 weeks. The Company's fiscal year ends on the last Saturday of March.
2. FINANCIAL INSTRUMENTS
Investments
The following is a summary of the Company's investments by major
security type:
- -----------------------------------------------------------------------------
March 30, March 25,
(In thousands) 1996 1995
- ------------------------------------------------------------------------------
Money market instruments $ 32,070 $ 78,194
Floating rate notes - 11,998
- ----------------------------------------------------------------------------
$ 32,070 $ 90,192
- ----------------------------------------------------------------------------
Included in cash and cash equivalents $ 32,070 78,194
Included in short-term investments - 11,998
- ----------------------------------------------------------------------------
$ 32,070 $ 90,192
- ----------------------------------------------------------------------------
At March 30, 1996 and March 25, 1995, all investments in debt and
equity securities are classified as available-for-sale and as such are
carried at fair market value. Realized gains and losses and declines in
value judged to be other than temporary are included in interest
income. The cost of securities sold is based on the specific
identification method. As of and for the years ended March 30, 1996 and
March 25, 1995, realized and unrealized gains and losses on available-for-
sale investments were not material.
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 adjusted
periodically during the course of the year 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:
(In thousands) March 30, 1996 March 25, 1995
- ----------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
- ----------------------------------------------------------------------------
- -Cash and cash equivalents $ 52,794 $ 52,794 $ 96,518 $ 96,518
Short-term investments - - 11,998 11,998
Note receivable 4,000 4,000 4,000 4,000
Investment in affiliate 825 825 1,010 1,010
Short and long-term debt
fixed rates 15,576 15,539 4,445 4,359
variable rates 96,000 96,000 30,000 30,000
debt from parent -
fixed rates 65,000 65,000 - -
Convertible subordinated
debentures 100,000 77,000 100,000 55,000
Foreign currency forward
exchange contracts - 18 - 37
- ----------------------------------------------------------------------------
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 are
generally included in Cost of Revenue. Unrealized gains or losses on
foreign currency forward contracts that are designated and effective as
hedges of firm commitments, are deferred and recorded in the same period
as the underlying transaction. Notional amounts of outstanding currency
forward contracts were $2,659,000 and $33,769,000, for fiscal years ended
1996 and 1995, respectively.
3. JOINT VENTURE
In March 1989, the Company and Kubota Corporation (Kubota) organized a
jointlyowned 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 and
1994 were immaterial to the Company's statements of operations, balance
sheets and statements of cash flows.
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 notebook 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.
During fiscal year 1996 and 1995 no customer accounted for more than 10%
of the Company's revenue. One customer accounted for approximately 24% of
the Company's revenue in fiscal year 1994.
The Company's export sales represented 41%, 48% and 43% of total revenue
in fiscal years 1996, 1995 and 1994, respectively. Approximately 60%, 53%,
and 53% of export sales were to Europe, while 35%, 38% and 35% of export
sales were to Asia Pacific in fiscal years 1996, 1995 and 1994, respectively.
Operations outside the United States primarily consist of manufacturing
plants in Singapore, Hong Kong, and Thailand 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 30, 1996 is presented in the following table:
(In thousands) U.S. Asia Pacific Eliminations Consolidated
- ----------------------------------------------------------------------------
Fiscal year ended March 30, 1996
- ----------------------------------------------------------------------------
Revenue from unaffiliated
customers $1,196,105 $ 68,522 $ - $1,264,627
Revenue from affiliated
customers 3,417 954 - 4,371
Transfers between
geographic locations 14,600 1,585,545 (1,600,145) -
- ----------------------------------------------------------------------------
Revenue 1,214,122 1,655,021 (1,600,145) 1,268,998
- ----------------------------------------------------------------------------
Income (loss) from
operations (204,376) 95,035 82 (109,259)
- ----------------------------------------------------------------------------
Identifiable assets 326,106 397,837 (281,456) 442,487
- ------------------------------------------------------------------------------
Fiscal year ended March 25, 1995
- -----------------------------------------------------------------------------
Revenue from unaffiliated
customers $ 884,301 $ 4,987 $ - $ 889,288
Revenue from affiliated
customers 17,511 - - 17,511
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 $ 1,143,170 $ 2,469 $ - $1,145,639
Revenue from affiliated
customers 6,976 - - 6,976
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
- -----------------------------------------------------------------------------
Revenue from unaffiliated and affiliated customers is based on the origin
of the sale. 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.
5. LINES OF CREDIT, DEBT AND CAPITAL LEASE OBLIGATIONS
Lines of credit, debt and capital lease obligations consist of the
following:
- -----------------------------------------------------------------------------
March 30, March 25,
(In thousands) 1996 1995
- ----------------------------------------------------------------------------
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 - 30,000
Short-term borrowings; interest payable at
variable rates ranging from 5.74% to 6.3%
per annum 96,000 -
Short-term borrowings from parent; interest
payable at rates ranging from 5.9% to 6.24% 65,000 -
Short-term borrowing; interest payable at a
rate of 6.120%; secured by equipment 13,800 -
Term loans, principal payable in varying
monthly, quarterly and semi annual installments through October 1996;
interest payable at a rate of 8.46% per annum;
secured by equipment 708 1,844
Term loans, principal payable in varying
monthly, bi-monthly and quarterly installments
through December 1996; interest payable
at rates ranging from 7.53% to 8.03% per
annum; secured by equipment 1,068 2,601
Capital lease and other obligations 1,079 479
- ----------------------------------------------------------------------------
277,655 134,924
Less amounts due within one year 177,474 32,957
- ----------------------------------------------------------------------------
Due after one year $ 100,181 $ 101,967
- -----------------------------------------------------------------------------
Future aggregate maturities exclusive of capital lease and other
obligations are as follows:
Fiscal year ending
(In thousands)
- ----------------------------------------------------------------------------
1997 $ 176,576
1998 5,000
1999 5,000
2000 5,000
2001 5,000
Later years 80,000
- ----------------------------------------------------------------------------
Total $ 276,576
- -----------------------------------------------------------------------------
The 5.75% Convertible Subordinated Debentures (Debentures) originally
were 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. Pursuant to the terms of the Indenture governing the Debentures,
dated March 1, 1987, upon the closing of the Merger under the Agreement and
Plan of Merger, dated November 2, 1995, between HEA and the Company,
Debenture holders were entitled to receive a conversion in lieu of shares
of common stock of the Company the same consideration per share received by
holders of common stock at the closing of the Merger. A First
Supplemental Indenture, dated January 11, 1996, accordingly provides
that each $1,000 principal amount of Debentures may be convertible to
25 shares of common stock of the Company (equivalent to a conversion
price of $40 per share), which is immediately converted into a cash payment
equal to $6.70 times 25 shares of common stock of the Company.
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
100.575% of the principal amount as of March 30, 1996 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.
On August 31, 1995, the Company established a $100 million
unsecured, revolving line of credit through Citicorp Securities Inc. and
syndicated among ten banks, which is guaranteed by Hyundai Electronics
Industries Co., Ltd. (HEI). This $100 million line of credit is a 364-
day committed facility, renewable annually up to three years, that is
used primarily for general operating purposes. As of March 30, 1996,
$96 million of borrowings and $1 million in letters of credit were
outstanding.
On December 29, 1995, the Company established a $100 million secured
bridge financing facility with HEA to provide additional working capital
financing through the Merger transition period. This credit facility
provided for draw downs up to $100 million and had a first priority
secured interest in all of the Company's accounts receivable. As of
March 30, 1996, $65 million of borrowings were outstanding under this
facility. All outstanding principal and accrued interest was due and paid
on April 10, 1996.
On March 30, 1996, the Company entered into a accounts
receivable securitization program with Citicorp Securities, Inc. Under this
program, the Company can make a repeating sale of its qualified trade accounts
receivables up to $100 million on a non-recourse basis. The proceeds from
the sale of these receivables received on April 10, 1996 were used to pay
down the entire secured bridge financing facility on that date, as described
above.
On January 31, 1996, the Company signed a one year credit facility in
the amount of $13.8 million to be used for capital equipment requirements
at the Singapore facility. This credit facility is guaranteed by HEI
and all outstanding amounts of principal and accrued interest are due and
payable on February 2, 1997.
On April 10, 1996, the Company obtained a new $100 million intercompany
line of credit from HEA. This line of credit allows for draw downs up
to $100 million and interest is payable quarterly. All outstanding
amounts of principal and accrued interest are due and payable on April 10,
1997. As of June 28, 1996, $65 million was outstanding.
The Company leases certain equipment under long-term leases. These
leases have been accounted for as installment purchases and, accordingly,
capitalized costs of $1,676,975 and $1,845,000 have been included in
machinery and equipment at March 30, 1996 and March 25, 1995,
respectively. Accumulated amortization of the leased equipment amounted to
$1,490,055 and $1,352,000 at March 30, 1996 and March 25, 1995,
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 30, 1996 are as follows:
Fiscal year ending (In thousands)
- ----------------------------------------------------------------------------
1997 $ 9,974
1998 6,507
1999 4,181
2000 2,892
2001 1,001
Later years 14,443
- ----------------------------------------------------------------------------
Total $ 38,998
- -----------------------------------------------------------------------------
The above commitments extend through fiscal year 2016. Rental expense
was approximately $11,960,000, $16,998,000 and $15,668,000 for fiscal years
1996, 1995 and 1994, 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 and another disk drive manufacturer.
The litigation between the Company and Rodime was then stayed pending an
appeal by Rodime. In November 1995, the Federal Circuit affirmed the
earlier court decision, and in February 1996, Rodime filed a petition
with the U.S. Supreme Court requesting review of the Federal Circuit's
opinion. The litigation remains stayed pending action by the Supreme
Court.
In November 1995, three separate actions (Wacholder v. Gallo, et al.,
Silver v. Maxtor, et al., and Barrington v. Gallo, et al.) were filed in the
Court of Chancery of the State of Delaware, in and for New Castle County.
Each of the foregoing actions generally alleged a breach of fiduciary
duty by the Company's directors in connection with the offer to purchase
the Company by Hyundai Electronics America and sought class
certification, preliminary and permanent injunctive relief to prevent
the acquisition, and damages and attorneys' fees. These actions were
subsequently consolidated with a similar California action (Campanella
v. Maxtor, et al.). Thereafter, following negotiations among counsel to
parties to the consolidated action, an agreement in principle for
settlement was reached. A memorandum of understanding was executed by the
parties which provided that in exchange for certain additional disclosures
to the Company's shareholders regarding the circumstances of the tender
offer, the foregoing actions would be settled, subject to completion of
confirmatory discovery, approval by the Court of Chancery, and payment by
the Company of plaintiffs' counsel fees and costs in an amount not to
exceed $315,000. The Company anticipates that settlement documents will be
submitted to the Court of Chancery by the end of June, 1996, and a date
for hearing should be set by late summer 1996.
In March 1996, a pro se complaint was filed in the Southern District of
New York by Morton Berman (Berman v. Maxtor Corporation, et al.). The
complaint alleged certain claims arising out of violation of U.S.
Securities law, Racketeer Influenced Corrupt Organization Act of
1970, and common law doctrines of fraud, negligence and negligent
misrepresentation, against the Company and several former and current
executive officers of the Company. In
April 1996, a motion for dismissal was filed on behalf of the Company and
the other defendants. In June 1996, Berman filed papers opposing the
motion and the Company replied. Also in June 1996, Berman filed a motion
to amend his complaint and the Company opposed the motion, requesting that
the court defer adjudication of Berman's motion to amend until it ruled
upon the Company's motion to dismiss.
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 claims 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
In January 1996, Hyundai Acquisition, Inc. (HAI) acquired by a cash
tender offer for $6.70 per share 32,044,065 shares of the Company's common
stock (the Acquisition). With the 19,480,000 Class A shares already
owned, HAI owned
over 90% of the Company's outstanding voting capital. On January 11,
1996, HAI was merged into the Company in a short form merger (the Merger),
and the Company became a wholly owned subsidiary of Hyundai Electronics
America (HEA). Shares of common stock outstanding immediately prior to the
Acquisition and Merger which were not owned by HEA or its affiliates were
converted into the right to receive $6.70 in cash per share pursuant to
the Merger. As of the Merger, trading of Maxtor common stock on the
NASDAQ National Market was suspended. Currently, there is no public
market for the Company's equity securities. The Company's 5.75%
convertible subordinated Debentures, due
2012, remain publicly traded.
In May 1995, the Company entered into a definitive manufacturing
agreement with HEI. Under the terms of the agreement, HEI manufactures
Maxtor-designed hard disk drives for the Company at a site in Korea.
Production at the Korean manufacturing site has commenced during the first
quarter of fiscal 1997..
8. STOCKHOLDERS' EQUITY (DEFICIT)
At the time of the Merger, the Company canceled its employee stock
purchase plan and stockholder rights plan.
Stock options
Effective as of the Merger, the Company's Fiscal 1988, 1992, 1995 Stock
Option Plans and the 1986 and 1996 Outside Directors Stock Option Plans
terminated and were subsequently replaced by the Company's 1996 Stock
Option Plan (the Plan).The Plan was approved by the Board of Directors
in May 1996 and
provides for a maximum of 10,272,168 shares to be reserved for grant.
Options under the Plan expire ten years from the date of grant.
The Plan generally provides for non-qualified stock options and
incentive stock options to be granted to eligible employees, consultants,
and 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.
Any person who is not an employee may be granted only a non-qualified stock
option.
Options granted under the Plan vest over a four-year period with 25%
vesting at the first anniversary date of the grant date and 6.25%
each quarter thereafter. The vesting schedule begins February 1, 1996
or hiring date, whichever is later.
The following table summarizes option activity through March 30, 1996:
- ----------------------------------------------------------------------------
Options outstanding
----------------------------------
Shares Average
(In thousands, except share available price per
Aggregate
and per share amounts) for grant Shares share value
- ----------------------------------------------------------------------------
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
Options granted (1,940,547) 1,940,547 4.75 9,226
Options exercised - (1,134,805) 4.18
(4,745)
Options canceled 992,862 (992,862) 5.56
(5,519)
Plan shares expired (151,886) - - -
Options canceled by merger (2,080,941) (5,965,845) 6.00
(35,795)
- ----------------------------------------------------------------------------
Balance at March 30, 1996 - - $ - $ -
- ----------------------------------------------------------------------------
No shares were vested as of March 30, 1996. There were no shares
outstanding subject to repurchase as of March 30, 1996, March 25, 1995
and March 26, 1994.
The Company accounts for stock options in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees." In accordance with SFAS No.
123, "Accounting for Stock-Based Compensation," the Company intends to
continue to apply APB No. 25 for purposes of determining net income and to
adopt the pro forma disclosure requirements of SFAS No. 123 for fiscal
1997. The adoption of SFAS No. 123 is not expected to have a material
effect on the financial statements of the Company.
9. INCOME TAXES
The provision for income taxes consists of the following:
- ----------------------------------------------------------------------------
(In thousands)
March 30, March 25, March 26,
Fiscal year ended 1996 1995 1994
- ----------------------------------------------------------------------------
Current:
Foreign $ 2,526 $ 2,099 $ 2,798
- ----------------------------------------------------------------------------
2,526 2,099 2,798
Deferred:
Foreign 300 (66) (934)
- ----------------------------------------------------------------------------
Total $ 2,826 $ 2,033 $ 1,864
- ----------------------------------------------------------------------------
- -
The provision for income taxes differs from the amount computed by
applying the U.S. statutory rate of 35% for fiscal years 1996, 1995 and
1994 to income (loss) before income taxes. The principal reasons for this
difference are as follows:
- ----------------------------------------------------------------------------
(In thousands) March 30, March 25, March 26,
Fiscal year ended 1996 1995 1994
- ----------------------------------------------------------------------------
- -Tax at U.S. statutory rate $ (41,982) $ (28,066) $ (89,504)
Tax savings from foreign operations (30,757) (19,732) (19,281)
Repatriated foreign earnings absorbed
by current year losses 11,624 33,045 74,855
U.S. loss not providing current
tax benefit 27,325 32,663 14,627
Valuation of temporary differences 36,550 (17,142) 18,995
Other 66 1,265 2,172
- ----------------------------------------------------------------------------
Total $ 2,826 $ 2,033 $ 1,864
- ----------------------------------------------------------------------------
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:
- ---------------------------------------------------------------------------
(In thousands) March 30, March 25,
Fiscal year ended 1996 1995
- ---------------------------------------------------------------------------
Deferred tax assets:
Inventory valuation account $ 6,956 $ 9,276
Depreciation 4,102 2,977
Sales related reserves 12,532 11,112
Net operating loss carryforwards 99,040 87,746
Tax credit carryforwards 18,252 18,543
Capitalized research and development 51,219 -
Other 2,496 2,084
- ---------------------------------------------------------------------------
Total deferred tax assets 194,597 131,738
Valuation allowance for deferred tax assets (160,312) (124,760)
- ---------------------------------------------------------------------------
Net deferred tax assets $ 34,285 $ 6,978
- ---------------------------------------------------------------------------
Deferred tax liabilities:
Unremitted earnings of certain
foreign entities $ 34,585 $ 6,978
- ----------------------------------------------------------------------------
Total deferred tax liabilities $ 34,585 $ 6,978
- ----------------------------------------------------------------------------
Approximately $16,590,000 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
$95,900,000, $62,200,000 and $61,000,000 in fiscal years 1996, 1995 and
1994, respectively. The Company currently enjoys a tax holiday for its
operations in Singapore that has been extended until June 30, 1997.
The net impact of this tax holiday was to decrease net loss by
approximately $22,763,000 in fiscal 1996 and $15,000,000 in each of
fiscal years 1995 and 1994, respectively. This equates to $0.55, $0.29
and $0.47 per share fully diluted, for fiscal years 1996, 1995 and 1994,
respectively.
At March 30, 1996, for federal income tax purposes, the Company had
net operating loss carryforwards of $293,000,000 which will expire
beginning in fiscal year 1997 and tax credit carryforwards of
approximately $18,300,000 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 $271,000,000 of net operating loss
carryforwards and the deduction equivalent of approximately $18,300,000
of tax credit carryforwards will be limited to approximately $22,400,000 per
year.
The acquisition of the Company by Hyundai, more fully described in the
related party transaction footnote, resulted in the Company becoming part
of the HEA consolidated group for federal income tax purposes during
January 1996. As a result, the Company's loss for the post-acquisition
period will be computed in accordance with a tax sharing agreement which
will be entered into between the Company and HEA. The Company has not
recorded any tax benefit in its financial statements for the amount of
the post-change net operating loss to be included in the HEA consolidated
income tax return.
10. SPECIAL ITEMS AND RESTRUCTURING
In the fourth quarter of fiscal year 1995, the Company recorded a
nonrecurring 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 were
substantially completed related to the $68.9 million special charges. As of
March 30, 1996, no amounts remained accrued for payments related to these
special charges.
The Company recorded a restructuring charge of $19.5 million in the
third quarter of fiscal year 1994. The restructuring plan provided
for the consolidation and streamlining of certain operations and
administration. 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 completed all of its restructuring
actions related to the $19.5 million restructuring charges taken in fiscal
1994. 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 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, total actual 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 30,
1996:
Severances, Rent and other
benefits and facilities
other headcount- related
(In thousands) related charges charges Total
- ---------------------------------------------------------------------------
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
- --------------------------------------------------------------------------
Cash expenditures - (502) (502)
Adjustments - - -
- ----------------------------------------------------------------------------
Balance at March 30, 1996 $ - $ - $ -
- ----------------------------------------------------------------------------
11. SUBSEQUENT EVENT (UNAUDITED)
In June 1996, the Company entered into an exchange agreement with HEA
whereby HEA exchanged 600 shares of Common Stock for 58,208,955 shares of
Series A Preferred Stock, $.01 par value. As of June 28, 1996, 58,208,955
shares of Series A Preferred Stock and no shares of Common Stock, $.01 par
value, were issued and outstanding. As of such date, none of the
outstanding shares of Series A Preferred Stock or Common Stock were held
by persons other than HEA.
In November 1994, the Company formed a wholly-owned subsidiary,
IMS International Manufacturing Services, Ltd., whose primary business
was contract manufacturing for electronic original equipment manufacturers
(OEMs). The Company's printed circuit board (PCB) assembly plant in Hong
Kong formed the foundation of the business, and a second plant was added
in Thailand in May 1995. In early June 1996, the Company reorganized
all of the operations under a wholly-owed Delaware subsidiary, International
Manufacturing Services, Inc. (IMS). IMS not only supplies the Company,
but a variety of external customers, with PCB assemblies, sub-assemblies
and fully integrated box-build products. In May 1996, the Company
entered into an agreement to sell a majority interest in of IMS to
certain IMS management and other investors. At completion of the
transaction in June 1996, the Company received $25 million in cash and
$20 million in notes from IMS, and retained a 23.5% ownership interest in
IMS. Pursuant to the Agreements, the Company made various
representations and warranties as to itself and IMS and has agreed
to indemnify Buyer for any breaches thereof. Generally, in the event that
losses from such breaches when aggregated exceed $500,000, Buyer shall be
entitled to indemnification for all losses, including the first $500,000 up
to a maximum total of $17,500,000, provided that tax and environmental
representations are not subject to the liability limit.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of
Maxtor Corporation (a wholly-owned subsidiary of Hyundai Electronics
America) as of March 30, 1996 and March 25, 1995, and the related
consolidated statements of operations, stockholders' equity (deficit) and
cash flows for each of the three fiscal years in the period ended
March 30, 1996. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Maxtor Corporation at March 30, 1996 and March 25,
1995, and the consolidated results of its operations and its cash flows
for each of the three fiscal years in the period ended March 30, 1996,
in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
San Jose, California
April 25, 1996 ERNST & YOUNG LLP
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the executive officers and directors of the
Company and their ages as of June 28, 1996. There are no family
relationships between any director or executive officer of the Company.
Executive officers serve at the discretion of the Board of Directors.
Name Age Position with the Company
Mong Hun Chung 47 Chairman of the Board
Dr. Chong Sup Park 48 President, Chief Executive Officer and
Director
Patrick Verderico 52 Executive Vice President, Chief Operating
Officer
Nathan Kawaye 43 Vice President, Chief Financial Officer
Glenn H. Stevens 45 Vice President, General Counsel and Secretary
Charles F. Christ 57 Director
Charles Hill 59 Director
Y.H. Kim 53 Director
Mong Hun Chung was elected Chairman of the Board in February 1994. Mr.
Chung has 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 Hyundai Business Group companies.
C.S. Park was appointed President and Chief Executive Officer of Maxtor
in February 1995. Previously, Dr. Park was President and Chief Executive
Officer at Axil Computer, Inc., a workstation computer manufacturer, in
Santa Clara, California. He also held various management positions
with Hyundai Electronics Industries Co., Ltd., including the position
of Senior Vice President, Semiconductor Sales and Marketing, which he held
from 1990 to 1992. From 1985 to 1989, Dr. Park was President and Chief
Executive Officer of Hyundai Electronics America.
Patrick Verderico joined the Company as Executive Vice President and
Chief Operating Officer in April 1996. Before joining Maxtor, he was
Chief Financial Officer and Vice President, Finance and
Administration, for Creative Technology from January 1994 until April 1996.
From October 1992 to January 1994, Mr. Verderico was Vice President,
Finance and Administration, and Chief Financial Officer of Cypress
Semiconductor. He was Senior Vice President of Technology Solutions
Company, a management consulting firm, from June 1992 to October 1992.
From July 1989 to May 1992, he was a management consulting partner with
Coopers & Lybrand. Mr. Verderico is also a director of Catalyst
Semiconductor and Micro Component Technology.
Nathan Kawaye joined the Company as Vice President, Finance and
Financial Planning & Analysis in November 1991. In October 1994, Mr.
Kawaye was appointed Vice President, Finance and Corporate Controller. In
April 1995, Mr. Kawaye was named Vice President, Finance, Corporate
Controller and Chief Accounting Officer. In February 1996, Mr.
Kawaye was appointed Vice President, Finance and Chief Financial Officer.
Prior to joining the Company, he served as vice president, finance &
administration and chief financial officer of Sigma Circuits
Incorporated, a printed circuit board manufacturer, from May 1989 to October
1991.
Glenn H. Stevens joined the Company as Vice President, General Counsel
and Secretary in June 1994. From August 1992 to May 1994, Mr. Stevens
had a private law practice. From 1979 to August 1992, he held various
positions within the legal department 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.
Charles F. Christ has been Vice President and General Manager of
the Components Division of Digital Equipment Corporation since July 1994.
Prior to joining Digital Equipment Corporation, Mr. Christ was a senior
partner with the management consulting group of Coopers & Lybrand from 1989
to 1990. Previously, he was President and Chief Executive Officer of
Digital Sound Corporation, a telecommunications voice processing company,
from 1986 to 1988.
Charles 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.
Y. H. Kim has been Chief Executive Officer and President of
Hyundai Electronics America and a member of its Board of Directors since
1990. Mr. Kim also holds directorship positions on the boards of Symbios
Logic Inc., TV/COM International, Inc., and Hyundai Semiconductors America.
In June 1996, the Board of Directors appointed Dr. Park to the newly-
created position of Vice Chairman to the Board of Directors, and appointed
Michael R. Cannon to the position of President, Chief Executive Officer
and Director, both effective July 1, 1996.
Item 11. DIRECTORS AND EXECUTIVE COMPENSATION
DIRECTORS
During fiscal 1996, non-employee members of the Board of Directors of the
Company received 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 Company's 1986 and 1996 Outside Directors Stock
Option Plans.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid to the Company's Chief
Executive Officer, the Company's other three executive officers whose total
salary and bonus exceeded $100,000 at the end of fiscal 1996, and two other
persons who served as executive officers of Maxtor during a portion of fiscal
1996, whose total salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
------------------------------ Compensation
Awards
------------
Other Annual All Other
Name and Fiscal Salary Bonus Compensation Options
Compensation
Principal Position Year $ $ ($) (Shares #) ($) (15)
- ------------------ ------ ------ ----- ----------- ---------- --------
C. S. Park (1) 1996 400,005 - - - 2,046
President and Chief 1995 73,289(7) - - 505,000(13) -
Executive Officer 1994 - - - 15,000(13) -
Richard D. Balanson
(2) 1996 351,596 - 207,475(12) 60,000 2,080
Exec. Vice President 1995 202,795 176,292(8) - 300,000 50
and Chief Technical 1994 - - - - -
Officer
Nathan Kawaye (3) 1996 189,799 - - 40,000 1,580
Vice President and 1995 166,578 5,277 - 11,666 260
Chief Financial
Officer 1994 161,004 14,303 - 10,041 260
Glenn H. Stevens (4) 1996 185,771 - - 40,000 195
Vice President,
General Counsel 1995 138,753 - - 60,000 190
and Secretary 1994 - - - - -
Non-Continuing
Executive Officers
Katherine C. Young
(5) 1996 228,059 - 45,496(9) 40,000
115,000(11)
Sr. Vice President, 1995 147,830 205,566(10) - 120,000 -
Strategic Materials, 1994 - - - - -
Services and Logistics
Rick R. Brantmeyer
(6) 1996 144,228 50,000(14) - 100,000 1,595
Sr. Vice President, 1995 - - - - -
Marketing and 1994 1994 - - - - -
Worldwide Sales
- --------------------
(1) Dr. Park was appointed President and Chief Executive Officer in
February 1995; previously, Dr. Park was a director, elected to the
Company's Board of Directors in February 1994.
(2) Dr. Balanson's employment with the Company terminated in June 1996.
(3) Mr. Kawaye joined the Company as Vice President, Finance and Financial
Planning & Analysis in November 1991. In February 1996, Mr. Kawaye was
appointed Vice President, Finance and Chief Financial Officer.
(4) Mr. Stevens joined the Company as Vice President, General Counsel and
Secretary in June 1994.
(5) Ms. Young's employment with the Company terminated in February 1996.
(6) Mr. Brantmeyer's employment with the Company terminated in June 1996.
(7) Includes $31,750 which represents payment for director fees for
Dr. Park's service as an outside director prior to his election as
President and Chief Executive Officer in February 1995.
(8) Represents bonus in the amount of $176,292 paid in accordance with
the Company's offer letter to Dr. Balanson.
(9) Includes $45,496 in relocation reimbursements paid in fiscal 1996.
(10) Represents bonus in the amount of $205,566 paid in accordance with
the Company's offer letter to Ms. Young.
(11) Represents a $115,000 payment to Ms. Young pursuant to the terms of
an oral agreement between Ms. Young and the Company as of February
29,1996 pursuant to which Ms. Young left the Company's employment.
(12) Represents $207,475 of relocation reimbursements paid in fiscal 1996.
(13) Includes options for 15,000 and 5,000 shares granted under the
1986 Outside Directors Plan and an option for 500,000 shares granted
under the 1995 Stock Option Plan upon Dr. Park's appointment as
Chief Executive Officer in February 1995.
(14) Represents bonus in the amount of $50,000 paid in accordance with
the Company's offer letter to Mr. Brantmeyer.
(15) The amounts shown in this column, unless otherwise indicated,
represent the Company's annual contributions to the Maxtor Savings Retirement
Plan,a 401(k) plan. All U.S. employees are eligible to participate in this
Plan.
Agreements with Non-Continuing Executive Officers
- -------------------------------------------------
On February 29, 1996, pursuant to the terms of an oral agreement
with Katherine C. Young (the "Young Agreement"), Ms. Young resigned
from her position as Senior Vice President, Strategic Materials, Services,
Logistics and from her employment with Maxtor effective February 29, 1996.
On June 7, 1996, Maxtor entered into a Confidential Resignation Agreement
and General Release of Claims with Richard D. Balanson (the
"Balanson Agreement"). Pursuant to the Balanson Agreement, Mr. Balanson
resigned from his position as Executive Vice President and Chief Technical
Officer and from his employment with Maxtor effective June 7, 1996. In
exchange for his release of all claims against Maxtor, Maxtor agreed to
provide Mr. Balanson with the following benefits: (i) payment of
$275,000.00 over a six-month period; (ii) continuation of health benefits
for a three-month period after June 7, 1996; and (iii) outplacement
services.
On June 7, 1996, Maxtor entered into a Confidential Resignation Agreement
and General Release of Claims with Rick R. Brantmeyer (the
"Brantmeyer Agreement"). Pursuant to the Brantmeyer Agreement, Mr.
Brantmeyer resigned from his position as Senior Vice President, Marketing
and Sales, and from his employment with Maxtor effective June 7, 1996. In
exchange for his release of all claims against Maxtor, Maxtor agreed to
provide Mr. Brantmeyer with the following benefits: (i) payment of
$125,000 over a six-month period; (ii) continuation of health benefits
for a three-month period after June 7, 1996; and (iii) outplacement
services.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options
granted in fiscal 1996 to each of the executive officers named in the Summary
Compensation Table:
Individual Grants Potential
Realizable Value
at Assumed
% of Total Annual Rates of
Stock
Options Price Appreciation
for
Number of Granted to Exercise Option Term (2)
Options Employees in Price Share Expiration----------------
Name Granted(1) Fiscal Year Per Share Date 5% 10%
- ---- --------- ----------- ---------- --------- --- ---
C. S. Park - - - - - -
Richard D.
Balanson 60,000 3.09% $4.75 08/22/05 $179,235 $528,138
Nathan Kawaye 40,000 2.06% $4.75 08/22/05 $119,490 $302,811
Glenn H.
Stevens 40,000 2.06% $4.75 08/22/05 $119,490 $302,811
Non-Continuing
Executive Officers
Katherine C.
Young 40,000 2.06% $4.75 08/22/05 $119,490 $302,811
Rick R.
Brantmeyer 100,000 5.15% $4.25 08/01/05 $267,280 $677,340
(1) Unless otherwise indicated, all options were granted under the Company's
Fiscal 1995 Stock Option Plan ("Stock Option Plan"). Options were
immediately exercisable and vest monthly over a four-year period as
determined by the Board of Directors in its sole discretion. Unvested
options were subject to repurchase by the Company. The Board retains
discretion to modify the terms, including the price of outstanding
options.
(2) Potential realizable value is based on an assumption that the market
price of the stock appreciates at the stated rate, compounded annually,
from the date of grant to the expiration date. These values are
calculated on requirements promulgated by the Securities and Exchange
Commission. Effective as of the January 11, 1996 Merger with HEA, the
Company's Common Stock is no longer publicly traded.
Aggregated OPTION EXERCISES IN LAST FISCAL YEAR AND Fiscal Year-End Option
Values
The following table sets forth information regarding year-end stock
option values for each of the executive officers named in the Summary
Compensation Table for fiscal 1996:
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year End(1) Fiscal Year
End(1) Number of
Shares Value Exercisable/ Exercisable/
Name Exercised(2) Realized(3) Unexercisable Unexercisable
- ------ ----------- ---------- ------------- ------------
C. S. Park 520,000 $ 1,024,000 - -
Richard D. Balanson 360,000 $ 664,500 - -
Nathan Kawaye 111,707 $ 193,454 - -
Glenn H. Stevens 100,000 $ 161,250 - -
Non-Continuing
Executive Officers
Katherine C. Young 160,000 $ 293,250 - -
Rick R. Brantmeyer 100,000 $ 245,000 - -
- -------------------
(1) Effective as of the Merger with Hyundai Electronics America (HEA),
the Company's Fiscal 1988, 1992, 1995 Stock Option Plans and the 1986
and 1996 Outside Directors Stock Option Plans terminated. Immediately
prior to the merger date, vesting of all options was accelerated to
100%. Shares of each outstanding option were immediately canceled and
a net payment of $6.70 per share less the exercise price per share was
issued. There were no options outstanding at fiscal year ended March
30, 1996 by executive officers named in the Summary Compensation Table.
(2) These amounts represent the number of option share
outstanding immediately prior to the Merger, subsequent to the
acceleration of all unvested option shares, which were canceled
pursuant to the terms of the Agreement and Plan of Merger with HEA in
lieu of a cash payment of $6.70 per share less the exercise price per
share.
(3) These amounts represent the cash payments disbursed for options
canceled pursuant to the terms of the Agreement and Plan of Merger
with HEA, calculated as the difference between $6.70 per share and
the exercise price per share times the number of the stock options
outstanding on the date of the Merger.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In June 1996, the Company entered into an exchange agreement with HEA
whereby HEA exchanged 600 shares of Common Stock for 58,208,955 shares of
Series A Preferred Stock, $.01 par value. As of June 28, 1996, 58,208,955
shares of Series A Preferred Stock and no shares of Common Stock, $.01 par
value, were issued and outstanding. As of such date, none of the
outstanding shares of Series A Preferred Stock or Common Stock were held
by persons other than HEA.
In January 1996, Hyundai Acquisition, Inc. (HAI) acquired by a cash
tender offer for $6.70 per share 32,044,065 shares of the Company's common
stock (the Acquisition). With the 19,480,000 Class A shares already
owned, HAI owned over 90% of the Company's outstanding voting capital.
On January 11, 1996, HAI was merged into the Company in a short form
merger (the Merger), and the Company became a wholly owned subsidiary of
Hyundai Electronics America (HEA). Shares of common stock outstanding
immediately prior to the Acquisition and Merger which were not owned by
HEA or its affiliates were converted into the right to receive $6.70 in
cash per share pursuant to the Merger. As of the Merger, trading of
Maxtor common stock on the NASDAQ National Market was suspended.
Currently, there is no public market for the Company's equity
securities. The Company's 5.75% convertible subordinated Debentures,
due
2012, remain publicly traded.
The Agreement and Plan of Merger was filed as an exhibit to the
Company's
Schedule 14D-9, as amended. See the Company's Schedule 14D-9 for
further information concerning the tender offer and merger.
For stock options issued to Directors and Officers under the 1996
Stock Option Plan, see Item 11: Directors and Executive Compensation on
page 41.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning related party financing arrangements with
HEA, refer to Part II, Item 8, Footnotes to Consolidated Financial
Statements, Footnote 5, page 31.
For information concerning severance arrangements with officers of
the Company, refer to Part III, Item 11, Director and Executive
Compensation, page 41.
In May 1995, the Company entered into a manufacturing and purchase
agreement pursuant to which HEI manufactures Maxtor-designed hard disk
drives for the Company. The additional manufacturing capacity provided
by HEI supplements the Company's production capacity at its manufacturing
plant in Singapore, and the two companies intend to participate in an
ongoing exchange of technology to enable HEI to assume a leadership
role in disk drive manufacturing and to enable Maxtor to obtain
high-quality, low-cost manufacturing capacity.
On November 2, 1995, the Company's Board of Directors approved an
Agreement and Plan of Merger (the "Merger Agreement") by and among the
Company, Hyundai Acquisition, Inc. ("HAI"), and HEA. On November 8, 1995,
HAI commenced a tender offer for all outstanding shares of the Company
for a purchase price of $6.70 per share. Upon expiration of the tender
offer on January 5, approximately 94% of the outstanding shares of the
Company had been tendered and accepted for payment by HAI. Accordingly,
on January 11, 1996, the merger of HAI into the Company was
effected under Delaware General
Corporation Law and pursuant to the terms of the Merger Agreement, and
the Company became a wholly-owned subsidiary of HEA.
It is the Company's policy to enter into indemnification agreements with its
officers and directors, (the "Agreements"). Pursuant to the Agreements, the
Company has agreed to indemnify its officers and directors to the maximum
extent permitted under Delaware law.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements and Financial Statement Schedules - See Index
to Consolidated Financial Statements under Item 8 on page 21 of this
report.
(2) Exhibits
See Index to Exhibits on pages 50 to 61 hereof.
(b) Reports on Form 8-K
Item 2. Disposition of International Manufacturing Services,
Incorporated, and Item 7. Financial Statements and Exhibits, filed
June 28, 1996 (event: June 13, 1996)
UNDERTAKING
Undertaking to Comply with Rules Governing Form S-8
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, as
amended, the undersigned registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into the Company's
Registration Statements on Form S-8 Nos. 33-2206, 33-18323, 33-18324, 33-
21514, 33-21518, 33-28427 and 33-32190.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Jose, State of California, on the 26th day of June, 1996.
MAXTOR CORPORATION
(Registrant)
By /s/ Chong Sup Park
--------------------------------
Dr. Chong Sup Park
President, Chief Executive
Officer, Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature Title Date
- ----------- ------- -------
/s/ Chong Sup Park President, Chief Executive June 26,1996
- -------------------------- Officer, Director
Dr. Chong Sup Park
/s/ Nathan Kawaye Vice President, Finance, June 26, 1996
- -------------------------- Chief Financial Officer
Nathan Kawaye
/s/ Mong Hun Chung Chairman of the Board June 26, 1996
- --------------------------
Mong Hun Chung
/s/ Charles Hill Director June 26, 1996
- --------------------------
Charles Hill
/s/ Charles F. Christ Director June 26, 1996
- --------------------------
Charles F. Christ
/s/ Y. H. Kim Director June 25, 1996
- --------------------------
Y. H. Kim
MAXTOR CORPORATION
SCHEDULE
II VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Allowance for Doubtful Accounts
- -----------------------------------------------------------------------------
Additions
Balance at Charged to Balance at
Beginning Cost and Deductions/ End of
Year Ended of Period Expenses (Recoveries) Period
[1]
- ---------------------------------------------------------------------------
March 30, 1996 $3,850 $1,232 $(114) $5,196
March 25, 1995 3,653 1,092 895 3,850
March 27, 1994 4,190 253 790 3,653
[1] Uncollectible accounts written off, net of recoveries
S-1
INDEX TO EXHIBITS
Sequentially
Exhibit No. Description Numbered Pages
2.1 (31) Agreement and Plan of Merger dated November 2,
1995 between Registrant, Hyundai Electronics America
and Hyundai Acquisition, Inc.
3.1 (6) Certificate of Incorporation
3.2 (8) Certificate of Amendment of Certificate of
Incorporation of Maxtor Corporation, dated December
23, 1987
3.3 (8) By-Laws as amended July 21, 1987
3.4 (21) Amended and Restated By-Laws of Maxtor
Corporation, A Delaware Company, effective February 3,
1994
3.5 (21) Restated Certificate of Incorporation of Maxtor
Corporation effective February 3, 1994
3.6 Amended and Restated Certificate of Incorporation
of Maxtor Corporation, dated June 6, 1996 66 - 72
3.7 Amended and Restated By-Laws, effective May 14,
1996 73 - 86
4.1 (3) Form of Certificate of Shares of Registrant's
Common Stock
4.2 (7) Maxtor Corporation Rights Plan
4.3 (22) Amendment to Rights Agreement between
Registrant and the First National Bank of Boston,
dated September 10, 1993
4.4 (32) Amendment No. 2 to Rights Agreement between Registrant and
the
First National
Bank of Boston, dated November 2, 1995.
10.1 (1) Omnilease Corporation Master Lease Agreement
No. 300362, dated as of January 14, 1983 and addenda
thereof
10.2 (1) Lease Agreement between Orchard Investment
Company No. 801, formerly Nelo, a California general
partnership and Registrant, dated March 23, 1984
10.3 (1) Lease Commitment between Walter E. Heller
&
Company and Registrant, dated as of March 11,
1985
10.4 (1) Stock Purchase Agreement between Steven P.
Kitrosser and Registrant, dated May 21, 1985
10.5 (1) Stock Purchase Agreement between James
McCoy
and Registrant, dated May 21, 1985
10.6 (1) Equipment Lease Agreement between Pacific
Western (formerly Pacific Valley) Bank and
Registrant, dated June 26, 1985
10.7 (1) Continuing Guaranty between Maxtor
Singapore
Limited and Bank of America N.T. & S.A., dated July
27, 1985
10.8 (9) Lease Agreement between John Arrillaga,
Separate Property Trust, Richard T. Perry, Separate
Property Trust and Registrant, dated August 27,
1986
10.9 (3) Marketing and Distribution Agreement between
Ricoh Company, Ltd. and Registrant, dated October
14, 1986
10.10 (3) Land Lease Agreement between Housing and
Development Board, Singapore and Maxtor Singapore
Limited, dated December 22, 1986
10.11 (3) Indenture dated February 16, 1987
10.12 (8) Stock Bonus Plan and Cash Bonus Plan between
Storage Dimensions, Inc. and Registrant dated June
15, 1987
10.13 (8) Merger Agreement between MAXSUB II, Inc., and
Storage Dimensions, Inc. dated October 26, 1987
10.14 (3) 1986 Outside Directors' Stock Option Plan
10.15 (3) Commitment from Union Bank to Registrant
regarding letters of credit for the benefit of the
officers and directors of the Registrant
10.16 (4) Agreement and Plan of Reorganization
10.17 (9) Revised Equipment Lease Agreement between
Capital Associates International, Inc. and
Registrant, dated September 28, 1988
10.18 (9) Credit Agreement between Bank of America
National Trust and Savings Association and
Registrant, dated October 18, 1988
10.19 (9) Equipment Lease Agreement between Pitney
Bowes
Credit Corporation and Registrant, dated November
2, 1988
10.20 (9) Equipment Lease Agreement between Concord
Leasing
(Asia) Pte Ltd. and Maxtor Singapore, Limited, dated
November 16, 1988
10.21 (9) Lease Agreement between Maxtor Singapore,
Limited and Jurong Town Corporation, dated November
16, 1988
10.22 (9) Lease Agreement between Greylands Business Park
Phase II and Storage Dimensions, Inc., dated December
14, 1988
10.23 (8) Stock Purchase Agreement among Registrant,
Storage Dimensions, Inc., David A. Eeg, Gene E.
Bowles, Jr., David P. Williams and David Lance
Robinson
10.24 (8) Fiscal 1988 Stock Option Plan
10.25 (8) Employee Stock Purchase Plan
10.26 (8) Dual Currency Loan Agreement between Maxtor
Singapore Limited, Maxtor Delaware, Maxtor
California and American Express Bank Limited
10.27 (8) Amended and Restated Fiscal 1985 Stock Option
Plan, including the Immediately Exercisable
Incentive Stock Option Agreement and the Immediately
Exercisable Nonqualified Stock Option Agreement
10.28 (9) Loan Agreement between Probo Pacific Pte Ltd.
and Maxtor Singapore Limited, dated March 20, 1989
10.29 (9) Loan Agreement between Concord Leasing (Asia)
Pte, Ltd. and Maxtor Singapore Limited, dated April
14, 1989
10.30 (10) Product Discontinuance Agreement between
Matsushita Communication Industrial Co., Ltd. (MCI)
and Registrant, dated August 23, 1989
10.31 (10) Equipment Lease Agreement between Capital
Associates International, Inc. and Registrant, dated
October 17, 1989
10.32 (10) Maxoptix Corporation 1989 Stock Option Plan
10.33 (9) Forms for Promissory Note and Amended and
Restated Promissory Note
10.34 (10) Amended and Restated Credit Agreement between
Bank of America National Trust and Savings
Association and Registrant, dated
January 31, 1990
10.35 (10) Amendment to Lease Agreement between Orchard
Investment Company No. 801, formerly Nelo, a
California general partnership, and Registrant,
dated February 15, 1990
10.36 (10) Sublease Agreement between RACAL-VADIC, a
Division of Racal Data Communications, Inc.
("Sublessor"), and Storage Dimensions, Inc.
("Sublessee"), dated February 16, 1990
10.37 (10) Collateral Sharing and Subordination
Agreement
between Registrant and Standard Chartered Bank,
dated April 5, 1990
10.38 (10) Loan and Security Agreement between
Registrant
and MiniScribe Corporation, dated April 5, 1990
10.39 (11) Agreement for the Sale and Purchase of Shares
in Tratford Pte. Ltd. between the Registrant,
MiniScribe Peripherals (Pte) Ltd. and certain
Individuals, dated May 8, 1990
10.40 (11) Agreement for the Sale and Purchase of Shares
in
Silkmount Limited between MaxSub Corporation,
Silkmount Limited and certain Individuals, dated May
18, 1990
10.41 (11) Assignment of Debt between Registrant,
MiniScribe (Hong Kong) Limited and certain
Individuals, dated May 18, 1990
10.42 (10) Asset Purchase Agreement between Registrant,
MiniScribe Corporation and Standard Chartered Bank,
dated May 30, 1990
10.43 (14) License Agreement with Rodime PLC, dated
December 8, 1987 assigned to Registrant on June 29,
1990
10.44 (14) Patent Cross License Agreement with IBM dated
October 1, 1984 assigned to Registrant effective June
30, 1990
10.45 (14) Lease Agreement between MiniScribe Corporation
and 345 Partnership dated June 6, 1990, assigned to
the Registrant effective June 30, 1990
10.46 (14) Lease Agreement between Maxtor Colorado and
Pratt Partnership (Lot 1A), dated July 5, 1990
10.47 (14) Lease Agreement between Maxtor Colorado and
Pratt Partnership (Lot 1C), dated July 5, 1990
10.48 (14) Lease Agreement between Maxtor Colorado and
Pratt Partnership (Lot 4), dated July 5, 1990
10.49 (14) Agreement for the Purchase of Land and
Improvements between Registrant and Nixdorf, dated
August 16, 1990
10.50 (15) Grant Agreement dated 25 October 1990 between
the Industrial Development Authority, Maxtor Ireland
Limited and Registrant
10.51 (12) Amendment of Agreement between Registrant,
Maxtor Colorado, Maxtor California and Standard
Chartered Bank, dated November 6, 1990
10.52 (14) Guarantee for Dastek between Registrant,
Dastek
and Silicon Valley Bank, dated November 30, 1990
10.53 (10) Judgment, William Lubliner vs. Maxtor
Corporation, James M. McCoy, William J. Dobbin, B.J.
Cassin, W. Charles Hazel and George M. Scalise
10.54 (10) Settlement Agreement, William Lubliner vs.
Maxtor Corporation, et al
10.55 (10) Fiscal 1991 Profit Sharing Plan Document
10.56 (10) Board of Director Compensation Approved for
Fiscal 1991
10.57 (14) Resignation Agreement and General Release of
Claims between Alexander E. Malaccorto and the
Registrant, dated January 11, 1991
10.58 (14) Employment Agreement between James M. McCoy
and
Registrant, dated January 17, 1991
10.59 (14) Resignation Agreement and General Release of
Claims between James N. Miler and the Registrant,
dated January 20, 1991
10.60 (14) Letter Agreement between George Scalise and
the
Registrant, dated February 22, 1991
10.61 (14) Resignation Agreement and General Release of
Claims between Steven Strain and the Registrant,
dated February 22, 1991
10.62 (14) Foothill Capital Credit Facility between
Registrant, Certain of its Subsidiaries and Foothill
Capital Corporation, dated April 22, 1991
10.63 (14) Employment Agreement between Laurence
Hootnick
and Registrant, dated May 3, 1991
10.64 (14) Employment Agreement between Roger Nordby and
Registrant, dated May 7, 1991
10.65 (14) Employment Agreement between Thomas F.
Burniece
and the Registrant, dated May 12, 1991
10.66 (15) Amendment of the Registrant's Continuing
Guarantee in favor of Foothill Capital Corporation,
dated July 10, 1991
10.67 (15) Settlement, Resignation and General Release
of
Claims between Registrant and Taroon C. Kamdar,
dated August 2, 1991
10.68 (15) Amendment of Registrant's Continuing
Guarantee
in favor of Foothill Capital Corporation, dated
August 9, 1991
10.69 (15) Amendment No. 1 to Lease by and between John
Arrillaga, Trustee, and Richard T. Peery, Trustee,
and Registrant, dated August 23, 1991
10.70 (15) Amendment of Registrant's Continuing
Guarantee
in favor of Foothill Capital Corporation, dated
September 20, 1991
10.71 (13) Amendment of Agreement between Registrant,
Maxtor Colorado, Maxtor California and Standard
Chartered Bank, dated December 27, 1990, and further
amended July 26, 1991 and October 4, 1991
10.72 (15) Lease Agreement between Registrant and Devcon
Associates 31, dated December 6, 1991
10.73 (15) Deed of Partial Discharge and Release between
Barclays Bank PLC and Maxtor Singapore Limited,
dated December 19, 1991
10.74 (15) Agreement for Purchase and Sale of Assets
among
Registrant, Read-Rite International, Read-Rite
Corporation and Maxtor Singapore Limited, dated
November 14, 1991, and amended December 20, 1991
10.75 (15) Asset Purchase Agreement among Registrant,
Storage Dimensions, Inc. and USD Acquisition, Inc.,
dated December 27, 1991
10.76 (15) Resignation Agreement and General Release of
Claims between Registrant and David S. Dury, dated
January 31, 1992
10.77 (15) Sublease between Registrant and Hauser
Chemical
Research, Inc., dated March 23, 1992
10.78 (15) First Amendment to Lease Agreement between
PCA
San Jose Associates and Registrant, dated March 25,
1992
10.79 (15) Asset Purchase Agreement among Registrant,
Maxtor Singapore LTD., and Sequel, Inc., dated March
12, 1992, and amended March 25, 1992
10.80 (5) Fiscal 1992 Stock Option Plan
10.81 (15) Form of Indemnity Agreement between the
Registrant and each of its Directors and Executive
Officers
10.82 (15) Maxtor/Sequel 8K/Panther Subcontract
Manufacturing and Warranty Services Agreement, dated
March 23, 1992
10.83 (15) Maxtor Corporation 1992 Employee Stock
Purchase
Plan
10.84 (15) Maxtor Corporation 1991 Employee Stock
Purchase
Plan
10.85 (15) Maxtor Corporation FY'93 Incentive Plan
Summary
10.86 (15) Fiscal 1992 Profit Sharing Plan Document
10.87 (17) Security Agreement between Registrant and
Chrysler Capital Corporation, dated April 14, 1992
10.88 (17) Subordination, Non-Disturbance, Estoppel and
Attornment Agreement between Loma Mortgage USA, Inc.
and Registrant, dated June 4, 1992
10.89 (17) Office Lease between Cabot Associates and
Registrant, dated July 23, 1992
10.90 (17) Revolving Credit Agreement among Registrant,
Barclays Bank PLC and The First National Bank of
Boston, dated as of September 9, 1992
10.91 (17) Security Agreement between Registrant and the
CIT Group/Equipment Financing, Inc., dated September
18, 1992
10.92 (17) Deed of Priorities among Maxtor (Hong Kong)
Limited, Registrant and General Electric Capital
Corporation, dated September 25, 1992
10.93 (17) Lease among Dares Developments (Woking)
Limited,
Maxtor Europe Limited and Registrant, dated October
1992
10.94 (16) Stock Purchase and Asset Acquisition Agreement
among David A. Eeg, Gene E. Bowles, Jr., CP
Acquisition, L.P. No. 4A, CP Acquisition, L.P. No.
4B, Capital Partners, Inc., FGS, Inc., Registrant,
Storage Dimensions, Inc. and SDI Acquisition
Corporation, dated December 4, 1992
10.95 (17) Loan and Security Agreement between Registrant
and Household Bank, f.s.b., dated December 11, 1992
10.96 (17) Global Master Rental Agreement between
Comdisco,
Inc. and Registrant, dated December 16, 1992
10.97 (17) Amendment No. 1 to Lease between Devcon
Associates 31 and Registrant, dated December 21, 1992
10.98 (17) Continuing Guaranty among Maxtor Peripherals
(S)
Pte., Ltd., Barclays Bank PLC and Registrant, dated
January 26, 1993
10.99 (17) Amendment No. 2 to Lease between Devcon
Associates 31 and Registrant, dated February 1, 1993
10.100 (17) Instrument of Resignation, Appointment and
Acceptance among Registrant, The First National Bank
of Boston and Bank of America National Trust and
Savings, dated as of March 22, 1993
10.101 (17) Waiver and First Amendment to Credit Agreement
among Registrant, Barclays Bank PLC and the First
National Bank of Boston, dated as of April 16, 1993
10.102 (17) Waiver and First Amendment to Continuing
Guaranty Among Registrant, Barclays Bank PLC and the
Lenders dated as of April 19, 1993
10.103 (17) Security Agreement between Registrant and
Barclays Bank PLC, dated April 16, 1993
10.104 (17) Lease Agreement between Registrant and Pratt
Partnership, dated April 30, 1993
10.105 (17) Agreement for Stock Transfer Services between
Registrant and The First National Bank of Boston,
dated May 6, 1993
10.106 (17) Maxtor Corporation CY93 Profit Sharing Plan
10.107 (17) Maxtor Corporation Management Incentive Plan
for
CY93
10.108 (18) Production Agreement between International
Business Machines Corporation and Registrant, dated
July 27, 1993 (with certain information deleted and
indicated by blackout text)
10.109 (19) Letter of Intent between Registrant and
Hyundai
Electronics Co., Ltd., dated August 18, 1993
10.110 (20) Financing Agreement between Registrant and The
CIT Group/Business Credit, Inc., dated September 16,
1993
10.111 (21) Form Letter Agreement between Registrant and
All
of Its Named Executive Officers, except Laurence
Hootnick, dated November 17, 1993
10.112 (21) Waiver to Financing Agreement among Registrant
and The CIT Group/Business Credit, Inc., dated
January 12, 1994
10.113 (21) Stock Purchase Agreement between Registrant
and
Hyundai Electronics Industries Co., Ltd., Hyundai
Heavy Industries Co., Ltd., Hyundai Corporation, and
Hyundai Merchant Marine Co., Ltd., dated September
10, 1993
10.114 (22) Confidential Resignation Agreement and General
Release of Claims between Registrant and Thomas F.
Burniece III, dated February 4, 1994
10.115 (22) License Agreement between Registrant and
MiniStor Peripherals Corporation, dated February 23,
1994
10.116 (22) Confidential Resignation Agreement and General
Release of Claims between Registrant and John P.
Livingston, dated April 8, 1994
10.117 (22) Tenancy Agreement between Barinet Company
Limited and Maxtor (Hong Kong) Limited, dated April
26, 1994
10.118 (23) Confidential Resignation Agreement and General
Release of Claims between Registrant and Laurence R.
Hootnick, dated June 14, 1994
10.119 (23) Confidential Resignation Agreement and General
Release of Claims between Registrant and Mark
Chandler, dated June 28, 1994
10.120 (24) Amendment No.2 to Lease between John Arrillaga
&
Richard T. Peery and Registrant, dated June 28, 1994
10.121 (24) Amendment No. 3 to Lease between Devcon
Associates 31 and Registrant, dated June 28, 1994
10.122 (24) Confidential Resignation Agreement and General
Release of Claims between Registrant and Skip
Kilsdonk, dated September 7, 1994
10.123 (24) Confidential Resignation Agreement and General
Release of Claims between Registrant and Sallee
Peterson, dated September 23, 1994
10.124 (24) Waiver to Financing Agreement among Registrant and The
CIT
Group/Business Credit, Inc., dated October 11, 1994
10.125 (24) Amendment No. 1 to Financing Agreement between
Registrant and The CIT Group/Business Credit, Inc.,
dated October 31, 1994
10.126 (27) License agreement between Registrant and NEC
Corporation,dated October 18, 1994
10.127 (27) Lease Agreement for Premises Located at 1821 Lefthand
Circle, Suite D, between Registrant and Pratt Land Limited
Liability Company, dated October 19, 1994
10.128 (27) Lease Agreement for Premises Located at 1841 Lefthand
Circle between Registrant and Pratt Land Limited Liability
Company, dated October 19, 1994
10.129 (27) Lease Agreement for Premises Located at 1851 Lefthand
Circle between Registrant and Pratt Land Limited Liability
Company, dated October 19, 1994
10.130 (27) Lease Agreement for Premises Located at 2121 Miller
Drive
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994
10.131 (27) Lease Agreement for Premises Located at 2190 Miller
Drive
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994
10.132 (27) Confidential Resignation Agreement and General Release
of
Claims between Registrant and Patricia M. Roboostoff, dated
November 30, 1994
10.133 (27) Stock Purchase Agreement between Registrant, Maxoptix
Corporation and Kubota Electronics America Corporation, dated
December 26, 1994
10.134 (28) Confidential Resignation Agreement and General Release of
Claims between Registrant and Larry J. Smart, dated Feburuary 7,
1995
10.135 (28) Lease Agreement by and between 345 Partnership and
Registrant, dated February 24, 1995
10.136 (28) Lease Agreement for Premises Located at 1900 Pike Road,
Suite A Longmont, CO, between Registrant as Tenant and Pratt Land
Limited Liability Company as Landlord, dated February 24, 1995
10.137 (28) Lease Agreement for Premises Located at 2040 Miller Drive
Suite A, B, & C between Registrant as Tenant and Pratt Land
Limited Liability Company as Landlord, dated February 24, 1995
10.138 (28) Manufacturing and Purchase Agreement by and Between
Registrant and Hyundai Electronics Industries Co., Ltd., dated
April 27, 1995(with certain information deleted and indicated by
blank spaces)
10.139 (28) Lease Agreement for Premises Located at 2040
Miller Drive, Suites D, E, & F, Longmont, CO, between
Registrant as Tenant and Pratt Management Company,
LLC as Landlord
10.140 (29) Memorandum of Understanding concerning
Guarantee
by Hyundai Electronics Co., Ltd. of Credit Facility
for Registrant, dated July 17, 1995
10.141 (29) Waiver to Financing Agreement among Registrant
and The CIT Group/Business Credit, Inc., dated August
2, 1995
10.142 (33) Credit Agreement among Registrant and The
Initial Lenders and the Issuing Bank and Citibank,
N.A., dated August 31, 1995
10.143 (33) The Guaranty and Recourse Agreement among
Registrant and Hyundai Electronics Industries Co.,
Ltd., dated August 31, 1995
10.144 (33) Waiver to Financing Agreement among Registrant
and the CIT Group/Business Credit, Inc., and
Assignment Agreement among Registrant, the CIT
Group/Business Credit, Inc., and Finova Capital
Corporation, dated October 11, 1995.
10.145 (33) Amendment to the Financing Agreement among
Registrant and the CIT Group/Business Credit, Inc.,
dated October 17, 1995
10.146 (34) First Supplemental Indenture, dated as of January 11,
1996,
between Maxtor and State Street Bank and Trust Company
10.147 (34) Credit Agreement, dated as of December 29, 1995 between
Maxtor Corporation and Hyundai Electronics America
10.148 (25) Maxtor Corporation 1995 Stock Option Plan
10.149 (26) Maxtor Corporation Individual Stock Option
Agreement, dated November 8, 1994
10.150 (30) Maxtor Corporation 1992 Employee Stock Purchase
Plan and 1996 Outside Directors Stock Option Plan, dated
October 9, 1995
10.151 Maxtor Corporation 1996 Stock Option Plan 87 - 101
10.152 Intercompany Loan Agreement, dated as of April 10, 1996,
between Maxtor Corporation and Hyundai Electronics America
102 - 111
10.153 Excerpts from the Execution Copy of Receivables Purchase
and Sale Agreement, dated as of March 30, 1996, between
Maxtor Corporation and Corporate Receivables Corporation
and Citicorp North America, Incorporated 112 - 134
10.154 (35) Recapitalization Agreement among the Company,
International Manufacturing Services, Incorporated and
certain investors, dated as of May 21, 1996
10.155 (35) Redemption Agreement between Maxtor Corporation
and
International Manufacturing Services, Incorporated,
dated as of May 21, 1996
10.156 (35) Manufacturing Services Agreement between Maxtor
Corporation and International Manufacturing Services,
Incorporated, dated June 13, 1996*
11.1 Computation of Net Loss Per Share 135 - 136
23.1 Consent of Ernst &Young, LLP, Independent Auditors
137 - 138
27 Financial Data Schedule 139 - 140
* Confidential treatment has been requested for portions of this
document
- ----------------------------------------------------------------------------
--------------------------------------------------------------
(1) Incorporated by reference to exhibits to Registration Statement No. 2
98568 effective August 7, 1985
(2) Incorporated by reference to exhibits to Registration Statement No. 33
4092 effective April 2, 1986
(3) Incorporated by reference to exhibits to Registration Statement No. 33
12123 effective February 26, 1987
(4) Incorporated by reference to exhibits to Registration Statement No. 33
12768 effective April 23, 1987
(5) Incorporated by reference to exhibits to Registration Statement No. 33
43172 effective October 7, 1992
(6) Incorporated by reference to exhibits to Registration Statement No. 33
8607 effective September 10, 1986
(7) Incorporated by reference to exhibits of Form 8-K filed February 8,
1988 (8) Incorporated by reference to exhibits to Annual Report on Form
10-K effective June 24, 1988
(9) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective June 24, 1989
(10) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective June 1, 1990
(11) Incorporated by reference to exhibits of Form 8-K filed July 13, 1990
(12) Incorporated by reference to exhibits of Form 8 filed November 13, 1990
(13) Incorporated by reference to exhibits of Form 8 filed January 8, 1991
(14) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective July 15, 1991
(15) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective June 25, 1992
(16) Incorporated by reference to exhibits of Form 8-K filed January 8, 1993
(17) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective May 27, 1993
(18) Incorporated by reference to exhibits of Form 10-Q filed August 10, 1993
(19) Incorporated by reference to exhibits of Form 8-K filed August 19, 1993
(20) Incorporated by reference to exhibits of Form 10-Q filed November 8, 1993
(21) Incorporated by reference to exhibits of Form 10-Q filed February 7, 1994
(22) Incorporated by reference to exhibits of Form 10-K filed June 24, 1994
(23) Incorporated by reference to exhibits of Form 10-Q filed August 5, 1994
(24) Incorporated by reference to exhibits of Form 10-Q filed November 8, 1994
(25) Incorporated by reference to exhibits to RegistrationStatement No. 33
56405 effective November 10, 1994
(26) Incorporated by reference to exhibits to Registration Statement No. 33
56407 effective November 10, 1994
(27) Incorporated by reference to exhibits of Form 10-Q filed February 7, 1995
(28) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective June 23, 1995
(29) Incorporated by reference to exhibits of Form 10-Q filed August 14, 1995
(30) Incorporated by reference to exhibits to Registration Statement No. 33
63295 effective October 10, 1995
(31) Incorporated by reference to exhibit III of Schedule 14D-9 filed
November 9, 1995
(32) Incorporated by reference to exhibit VI of schedule 14D-9 filed
November 9, 1995
(33) Incorporated by reference to exhibits of Form 10-Q filed November 14,1996
(34) Incorporated by reference to exhibits of Form 10-Q filed February 14, 1996
(35) Incorporated by reference to exhibits of Form 8-K filed June 28, 1996
PA1\483985.03 6
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MAXTOR CORPORATION
Maxtor Corporation, a corporation organized and existing under the laws
of the State of Delaware, hereby certifies that:
1. The name of the corporation is Maxtor Corporation. The
corporation's original certificate of incorporation was filed with the
Secretary of State of the State of Delaware on July 24, 1986.
2. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of
Incorporation of this corporation and has been duly adopted in accordance
with Sections 242 and 245 of the General Corporation Law of the State of
Delaware.
3. The text of the Certificate of Incorporation of this corporation is
hereby restated and further amended to read in its entirety as follows:
FIRST: The name of the corporation is Maxtor Corporation (hereinafter
sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of the registered agent
at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue two hundred five million
(205,000,000), consisting of:
(1) ninety-five million (95,000,000) shares of Preferred Stock, par
value one cent ($.01) per share (the "Preferred Stock"), all of which shall
be designated "Series A Preferred Stock;" and
(2) one hundred ten million (110,000,000) shares of common stock,
par value one cent ($.01) per share.
B. The powers, preferences, rights, restrictions, and other matters
relating to the Series A Preferred Stock are as follows:
(1) Dividends. (i) The holders of shares of Series A Preferred
Stock shall be entitled, when and as declared by the Board of Directors, to
dividends out of funds legally available therefor at a rate of $0.40 per
share, per annum (as adjusted to reflect stock splits, stock dividends,
recapitalizations and the like), prior to the declaration, setting aside or
payment of any dividend to the holders of the corporation's Common Stock. No
dividend shall be declared or set apart for payment with respect to the
Common Stock in any year, unless there shall have been declared and paid (or
set apart for payment) the full preferential dividend set forth above with
respect to the Series A Preferred Stock during such year. Dividends shall
not be cumulative and no undeclared or unpaid dividend shall bear interest.
(2) Preference on Liquidation.
(i) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, the assets and funds of the
Corporation available for distribution to shareholders shall be distributed
as follows:
(a) First, the holders of Series A Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of
the assets and funds of the Corporation to the holders of Common Stock, by
reason of their ownership thereof an amount per share equal to $6.70 for each
outstanding share of Series A Preferred Stock, subject to adjustment for
stock splits, stock dividends, recapitalizations and the like, plus any
declared but unpaid dividends on such share.
If upon the occurrence of any liquidation, dissolution or
winding up of the Corporation the assets and funds available for distribution
among the holders of the Series A Preferred Stock pursuant to this subsection
(a) shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock in proportion to the
aggregate liquidation preference to which such holders would be entitled
under this subsection (a) if the full aforesaid preferential amount were
available for distribution.
(b) After payment has been made to the holders of the Preferred
Stock of the full preferential amounts to which they shall be entitled, if
any, as described in subsection (i) above, the holders of the Common Stock
and Preferred Stock shall be entitled to share ratably in all remaining
assets to be distributed, based upon the number of shares of Common Stock
then held, with each share of Preferred Stock treated as the number of shares
of Common Stock into which such share of Preferred Stock is then convertible.
(ii) The merger or consolidation of the Corporation into or with
another corporation in which the shareholders of the Corporation shall own
less than 50% of the voting securities of the surviving corporation or the
sale, transfer or other disposition (but not including a transfer or
disposition by pledge or mortgage to a bona fide lender) of all or
substantially all of the assets of the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation as those terms are
used in this Paragraph 2.
(iii) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the Corporation shall, within
ten (10) days after the date the Board of Directors approves such action, or
twenty (20) days prior to any shareholders' meeting called to approve such
action, or twenty (20) days after the commencement of any involuntary
proceeding, whichever is earlier, give each holder of shares of Series A
Preferred Stock initial written notice of the proposed action. Such initial
written notice shall describe the material terms and conditions of such
proposed action, including a description of the stock, cash and property to
be received by the holders of shares of Series A Preferred Stock upon
consummation of the proposed action and the date of delivery thereof. If any
material change in the facts set forth in the initial notice shall occur, the
Corporation shall promptly give written notice to each holder of shares of
Series A Preferred Stock of such material change.
(iv) The Corporation shall not consummate any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation before
the expiration of thirty (30) days after the mailing of the initial notice or
ten (10) days after the mailing of any subsequent written notice, whichever
is later; provided that any such 30-day or 10-day period may be shortened
upon the written consent of the holders of all of the outstanding shares of
Series A Preferred Stock, each series consenting as a class.
(v) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involve the
distribution of assets other than cash, the Corporation shall promptly engage
competent independent appraisers to determine the value of the assets to be
distributed to the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock (it being understood that with respect to
the valuation of securities, the Corporation shall engage such appraiser as
shall be approved by the holders of a majority of shares of the Corporation's
outstanding Series A Preferred Stock voting together as a single class). The
Corporation shall, upon receipt of such appraiser's valuation, give prompt
written notice to each holder of shares of Series A Preferred Stock of the
appraiser's valuation.
(3) Voting Rights. Except as otherwise required by law, each holder
of shares of Series A Preferred Stock shall be entitled to the number of
votes for the Series A Preferred Stock held by him as shall be equal to the
whole number of shares of Common Stock into which all of such shares of
Series A Preferred Stock could be converted immediately after the close of
business on the record date for the vote or consent of shareholders and shall
have voting rights and powers equal to the voting rights and powers of the
Common Stock. The holder of each share of Series A Preferred Stock shall be
entitled to notice of any shareholders' meeting in accordance with the By-
laws of the Corporation and shall vote with holders of the Common Stock upon
any matter submitted to a vote of shareholders, except those matters required
by law to be submitted to a class vote.
(4) Conversion Rights. The holders of Series A Preferred Stock
shall have conversion rights as follows:
(i) Each share of Series A Preferred Stock shall be convertible,
at the option of the holder thereof, at any time at the principal office of
the Corporation or any transfer agent for such shares, into fully paid and
nonassessable shares of Common Stock of the Corporation. The number of
shares of Common Stock into which each share of Series A Preferred Stock may
be converted shall be determined by dividing $6.70 by the appropriate
Conversion Price for the Series A Preferred Stock determined as hereinafter
provided in effect at the time of the conversion. The Conversion Price per
share at which shares of Common Stock shall be initially issuable upon
conversion of any shares of Series A Preferred Stock shall be $6.70 for the
Series A Preferred Stock subject to adjustment as provided herein.
(ii) Each share of Series A Preferred Stock shall be converted
into Common Stock automatically in the manner provided herein upon the
earlier to occur of (i) the time the consent of at least a majority of the
outstanding Series A Preferred Stock to such conversion is obtained, or (ii)
the closing of the sale of the Corporation's securities pursuant to a firm
commitment, underwritten public offering.
(iii) Before any holder of Preferred Stock shall be entitled to
convert the same into shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed in blank or accompanied
by proper instruments of transfer, at the principal office of the Corporation
or of any transfer agent for the Preferred Stock, and shall give written
notice to the Corporation at such office that such holder elects to convert
the same and shall state in writing therein the name or names in which such
holder wishes the certificate or certificates for Common Stock to be issued.
As soon as practicable thereafter, the Corporation shall issue and deliver at
such office to such holder's nominee or nominees, certificates for the number
of whole shares of Common Stock to which such holder shall be entitled. No
fractional shares of Common Stock shall be issued by the Corporation and all
such fractional shares shall be disregarded. In lieu thereof, the
Corporation shall pay in cash the fair market value of such fractional shares
as determined by the Board of Directors of the Corporation. Such conversion
shall be deemed to have been made as of the date of such surrender of the
Preferred Stock to be converted, and the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such Common Stock on said
date.
(iv) In case the Corporation shall at any time (A) subdivide the
outstanding Common Stock, or (B) issue a stock dividend on its outstanding
Common Stock, the number of shares of Common Stock issuable upon conversion
of the Preferred Stock immediately prior to such subdivision or the issuance
of such stock dividend shall be proportionately increased by the same ratio
as the subdivision or dividend (with appropriate adjustments in the
Conversion Price of each series of Preferred Stock). In case the Corporation
shall at any time combine its outstanding Common Stock, the number of shares
of Common Stock issuable upon conversion of the Preferred Stock immediately
prior to such combination shall be proportionately decreased by the same
ratio as the combination (with appropriate adjustments in the Conversion
Price of each series of the Preferred Stock). All such adjustments described
herein shall be effective at the close of business on the date of such
subdivision, stock dividend or combination, as the case may be.
(v) In case of any capital reorganization (other than in
connection with a merger or other reorganization in which the Corporation is
not the continuing or surviving entity) or any reclassification of the Common
Stock of the Corporation, the Preferred Stock shall thereafter be convertible
into that number of shares of stock or other securities or property to which
a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of the shares of Preferred Stock immediately
prior to such reorganization or recapitalization would have been entitled
upon such reorganization or reclassification. In any such case, appropriate
adjustment (as determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holders of Preferred Stock, such that the
provisions set forth herein shall thereafter be applicable, as nearly as
reasonably may be, in relation to any share of stock or other property
thereafter deliverable upon the conversion.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by Statute or by this Amended and
Restated Certificate of Incorporation or the By-Laws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written
ballot unless the By-Laws so provide.
SIXTH:
A. The number of directors shall be fixed from time to time exclusively
by the Board of Directors pursuant to a resolution adopted by a majority of
the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). The directors shall be
divided into three classes, as nearly equal in number as reasonably possible,
with the term of office of the first class to expire at the 1994 annual
meeting of stockholders, the term of office of the second class to expire at
the 1995 annual meeting of stockholders and the term of office of the third
class to expire at the 1996 annual meeting of stockholders, provided that the
term of office of directors in office on the date of filing of this Amended
and Restated Certificate of Incorporation is unaffected by the filing of this
Amended and Restated Certificate of Incorporation. At each annual meeting of
stockholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of
stockholders after their election.
B. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
C. Any or all of the Directors may be removed from office at any time,
but only for cause and only by the affirmative vote of the holders of at
least a majority of all the outstanding shares of Common Stock and all
outstanding shares of Preferred Stock, voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend
or repeal By-laws of the Corporation. Any adoption, amendment or repeal of
By-laws of the Corporation by the Board of Directors shall require the
approval of a majority of the total number of authorized directors. The
stockholders shall also have power to adopt, amend or repeal the By-laws of
the Corporation.
EIGHTH: A director of this Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
If the Delaware General Corporation Law is hereafter amended to
authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article
NINTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
IN WITNESS WHEREOF, the corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its President and Chief
Executive Officer and attested to by its Secretary this sixth day of June,
1996.
/s/ C. S. Park
-------------------------------------
C.S. Park
President and Chief Executive Officer
Attest:
/s/ G. H. Stevens
- ---------------------------
Glenn H. Stevens, Secretary
PA1\483981.02 12
MAXTOR CORPORATION,
a Delaware Corporation
AMENDED AND RESTATED BY-LAWS
This document uses paragraph numbering, however you must indicate level
rather than using automatic numbering:
Level 1 I Article numbers
Level 2 1 Section numbers
Level 3 (1) Subparagraph numbers ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen months
subsequent to the last annual meeting of stockholders, or if no such meeting
has been held, the date of incorporation.
Section 2. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes prescribed in the notice of the meeting, may be
called only by (i) the Board of Directors, (ii) by the President or the
Secretary of the Corporation, or (iii) by the holders of shares entitled to
cast not less than fifty percent (50%) of the votes at such meeting, and
shall be held at such place, on such date, and at such time as they or he or
she shall fix. Business transacted at special meetings shall be confined to
the purpose or purposes stated in the notice. In the event a special meeting
is rightfully called by a person other than the Board of Directors, the Board
shall cooperate in causing the meeting to be properly noticed and the matter
as to which the meeting was called to be properly brought before the meeting.
Section 3. Notice of Meetings. Written notice of the place, date, and
time of all meetings of the stockholders shall be given, not less than ten
(10) nor more than sixty (60) days before the date on which the meeting is to
be held, to each stockholder entitled to vote at such meeting, except as
otherwise provided herein or required by law (meaning, here and hereinafter,
as required from time to time by the Delaware General Corporation Law or the
Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than
thirty (30) days after the date for which the meeting was originally noticed,
or if a new record date is fixed for the adjourned meeting, written notice of
the place, date, and time of the adjourned meeting shall be given in
conformity herewith. At any adjourned meeting, any business may be
transacted which might have been transacted at the original meeting.
Section 4. Quorum. At any meeting of the stockholders, the holders of
a majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all purposes,
unless or except to the extent that the presence of a larger number may be
required by law.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote
who are present, in person or by proxy, may adjourn the meeting to another
place, date, or time.
Section 5. Conduct of Stockholders' Meeting. Such person as the Board
of Directors may have designated or, in the absence of such a person, the
chief executive officer of the Corporation or, in his or her absence, such
person as may be chosen by the holders of a majority of the shares entitled
to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the
absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order. The date and time of the opening
and closing of the polls for each matter upon which the stockholders will
vote at the meeting shall be announced at the meeting.
Section 7. Notice of Stockholder Business. At an annual or special
meeting of the stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. To be properly brought before
a meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
(b) properly brought before the meeting by or at the direction of the Board
of Directors, or (c) properly brought before a meeting by a stockholder and
if, and only if, the notice of a special meeting provides for business to be
brought before the meeting by stockholders, properly brought before the
meeting by a stockholder. Notwithstanding anything in the By-Laws to the
contrary, no business shall be conducted at an annual or special meeting
except in accordance with the procedures set forth in this Section 7. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 7, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 8. Proxies and Voting. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized
by an instrument in writing or by a transmission permitted by law filed in
accordance with the procedure established for the meeting. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this paragraph may be substituted or used in
lieu of the original writing or transmission for any and all purposes for
which the original writing or transmission could be used, provided that such
copy, facsimile transmission or other reproduction shall be complete
reproduction for the entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that
upon demand therefor by a stockholder entitled to vote or his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each
of which shall state the name of the stockholder or proxy voting and such
other information as may be required under the procedure established for the
meeting. Every vote taken by ballots shall be counted by an inspector or
inspectors appointed by the chairman of the meeting. The Corporation may,
and to the extent required by law, shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting may, and to the extent required by law,
shall, appoint one or more inspectors to act at the meeting. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability.
Elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or by the Certificate of Incorporation of
the Corporation, all other matters shall be determined by a majority of the
votes cast affirmatively or negatively.
Section 9. Stock List. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the
number of shares registered in his or her name, shall be open to the
examination of any such stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or if not
so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number
of shares held by each of them.
Section 10. Consent of Stockholders in Lieu of Meeting. Any action
required or permitted to be taken at any annual or special meeting of the
stockholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less
than the minimum of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote were present and
voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders
who have not consented in writing. Any such consent may be in counterparts
and shall be effective as of the date of the last signature thereon needed to
make it effective unless otherwise provided therein. Such consent shall be
filed with the minutes of proceedings of the stockholders. If the action
that is consented to is such as would have required the filing of a
certificate under any provisions of the Delaware General Corporation Law if
such action had been voted upon by stockholders at a meeting, the certificate
filed shall state, in lieu of any statement concerning a vote of
stockholders, that written consent has been given in accordance with the
provisions of Section 228 of the Delaware General Corporation Law, and that
written notice has been given as provided in that section.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Term of Office. The number of directors shall be
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption). The directors shall be divided into three classes, as nearly
equal in number as reasonably possible, with the term of office of the first
class to expire at the 1996 annual meeting of stockholders, the term of
office of the second class to expire at the 1997 annual meeting of
stockholders and the term of office of the third class to expire at the 1998
annual meeting of stockholders, provided that the term of office of directors
in office on the date these Amended and Restated By-Laws are adopted is not
affected by the adoption of these Amended and Restated By-Laws. At each
annual meeting of stockholders following such initial classification and
election, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election.
Section 2. Vacancies and Newly Created Directorships. Except as
provided in the Certificate of Incorporation of the Corporation, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
may be filled only by a majority vote of the directors then in office, though
less than a quorum, and directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of
any incumbent director.
Section 3. Removal. Any or all of the directors may be removed from
office at any time, but only for cause and only by the affirmative vote of
the holders of at least a majority of all outstanding shares of Common Stock
and all outstanding shares of Preferred Stock, voting together as a single
class.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such place or places, on such date or dates, and
at such time or times as shall have been established by the Board of
Directors and publicized among all directors. A notice of each regular
meeting shall not be required.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by one-third of the directors then in office (rounded
up to the nearest whole number) or by the chief executive officer and shall
be held at such place, on such date, and at such time as they or he or she
shall fix. Notice of the place, date, and time of each such special meeting
shall be given each director by whom it is not waived by mailing written
notice not less than five (5) days before the meeting or by transmitting the
same by telefacsimile not less than twenty-four (24) hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting.
Section 6. Quorum. At any meeting of the Board of Directors, a
majority of the total number of authorized directors shall constitute a
quorum for all purposes. If a quorum shall fail to attend any meeting, a
majority of those present may adjourn the meeting to another place, date, or
time, without further notice or waiver thereof.
Section 7. Participation in Meetings by Conference Telephone. Members
of the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other and such participation shall constitute
presence in person at such meeting.
Section 8. Conduct of Business. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the
vote of a majority of the directors present, except as otherwise provided
herein or required by law. Action may be taken by the Board of Directors
without a meeting if all members thereof consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
Section 9. Powers. Except for matters requiring the consent of any
stockholders of the Corporation or as required by law, the Board of Directors
may exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any officer upon
any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these by-aws, for the management of the Corporation's business and affairs.
Section 10. Compensation of Directors. Directors, as such, may
receive, pursuant to resolution of the Board of Directors, fixed fees and
other compensation for their services as directors, including, without
limitation, their services as members of committees of the Board of
Directors.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors. The Board of
Directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and
shall, for those committees and any others provided for herein, elect a
director or directors to serve as the member or members, designating, if it
desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his place, the member or members of the committee present at the
meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the
Board of Directors to act at the meeting in the place of the absent or
disqualified member.
Section 2. Conduct of Business. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; one-
third of the authorized members shall constitute a quorum unless the
committee shall consist of one or two members, in which event one member
shall constitute a quorum; and all matters shall be determined by a majority
vote of the members present. Action may be taken by any committee without a
meeting if all members thereof consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of such committee.
ARTICLE IV
OFFICERS
Section 1. Generally. The officers of the Corporation shall consist of
a Chairman of the Board, a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other offices as may from time to time be
appointed by the Board of Directors. Except as otherwise provided in the
Certificate of Incorporation of the Corporation, officers shall be elected by
the Board of Directors, which shall consider that subject at its first
meeting after every annual meeting of stockholders. Each officer shall hold
office until his or her successor is elected and qualified or until his or
her earlier resignation or removal. The Chairman of the Board and the
President shall each be members of the Board of Directors. Any number of
offices may be held by the same person.
Section 2. Chairman of the Board. The Chairman of the Board shall
perform all duties and have all powers which are commonly incident to the
office of the Chairman of the Board or which are delegated to him or her by
the Board of Directors.
Section 3. President. The President shall be the chief executive
officer of the Corporation. Subject to the provisions of these by-laws and
to the direction of the Board of Directors, he or she shall have the
responsibility for the general management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the office of chief executive or which are
delegated to him or her by the Board of Directors. He or she shall have
power to sign all stock certificates, contracts and other instruments of the
Corporation which are authorized and shall have general supervision and
direction of all of the other officers, employees and agents of the
Corporation.
Section 4. Vice President. Each Vice President shall have such powers
and duties as may be delegated to him or her by the Board of Directors. One
Vice President shall be designated by the Board to perform the duties and
exercise the powers of the President in the event of the President's absence
or disability.
Section 5. Treasurer. The Treasurer shall have the responsibility for
maintaining the financial records of the Corporation and shall have custody
of all monies and securities of the Corporation. He or she shall make such
disbursements of the funds of the Corporation as are authorized and shall
render from time to time an account of all such transactions and of the
financial condition of the Corporation. The Treasurer shall also perform
such other duties as the Board of Directors may from time to time prescribe.
Section 6. Secretary. The secretary shall issue all authorized notices
for, and shall keep minutes of, all meetings of the stockholders and the
Board of Directors. He or she shall have charge of the corporate books and
shall perform such other duties as the Board of Directors may from time to
time prescribe.
Section 7. Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other
officers or agents, notwithstanding any provision hereof.
Section 8. Removal. Except as otherwise provided in the Certificate of
Incorporation of the Corporation, any officer of the Corporation may be
removed at any time, with or without cause, by the Board of Directors.
Section 9. Action With Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy,
at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such
other corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock. Each stockholder shall be entitled
to a certificate signed by, or in the name of the Corporation by, the
President or a Vice President, and by the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer, certifying the number
of shares owned by him or her. Any of or all the signatures on the
certificate may be facsimile.
Section 2. Transfers of Stock. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the
Corporation or by transfer agents designated to transfer shares of the stock
of the Corporation. Except where a certificate is issued in accordance with
Section 4 of Article V of these By-laws, an outstanding certificate for the
number of shares involved shall be surrendered for cancellation before a new
certificate is issued therefor.
Section 3. Record Date. The Board of Directors may fix a record date,
which shall not be more than sixty nor fewer than ten days before the date of
any meeting of stockholders, nor more than sixty days prior to the time for
the other action hereinafter described, as of which there shall be determined
the stockholders who are entitled: to notice of or to vote at any meeting of
stockholders or any adjournment thereof; to express consent to corporate
action in writing without a meeting; to receive payment of any dividend or
other distribution or allotment of any rights; or to exercise any rights with
respect to any change, conversion or exchange of stock or with respect to any
other lawful action.
Section 4. Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued
in its place pursuant to such regulations as the Board of Directors may
establish concerning proof of such loss, theft or destruction and concerning
the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
NOTICES
Section 1. Notices. Except as otherwise specifically provided herein
or required by law, all notices required to be given to any stockholder,
director, officer, employee or agent shall be in writing and may in every
instance be effectively given by hand delivery to the recipient thereof, by
depositing such notice in the mails, postage paid, or by sending such notice
by telefacsimile. Any such notice shall be addressed to such stockholder,
director, officer, employee or agent at his or her last known address as the
same appears on the books of the Corporation. The time when such notice is
received by such stockholder, director, officer, employee or agent, or by any
person accepting such notice on behalf of such person, if hand delivered, or
dispatched, if delivered through the mails or by telefacsimile, shall be the
time of the giving of the notice.
Section 2. Waivers. A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before or after
the time of the event for which notice is to be given, shall be deemed
equivalent to the notice required to be given to such stockholder, director,
officer, employee or agent. Neither the business nor the purpose of any
meeting need be specified in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures. In addition to the provisions for use
of facsimile signatures elsewhere specifically authorized in these by-laws,
facsimile signatures of any officer or officers of the Corporation may be
used whenever and as authorized by the Board of Directors or a committee
thereof.
Section 2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of
Directors or a committee thereof, duplicates of the seal may be kept and used
by the Treasurer or by an Assistant Secretary or Assistant Treasurer.
Section 3. Reliance Upon Books, Reports and Records. Each director,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records
of the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
Section 5. Time Periods. In applying any provision of these by-laws
which require that an act be done or not done a specified number of days
prior to an event or that an act be done during a period of a specified
number of days prior to an event, calendar days shall be used, the day of the
doing of the act shall be excluded, and the day of the event shall be
included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he
or she is the legal representative, is or was a director, officer or employee
of the Corporation or is or was serving at the request of the Corporation as
a director, officer or employee of another corporation, or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer or employee or in any
other capacity while serving as a director, officer or employee, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by Delaware Law, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said Law permitted the Corporation to provide prior to such amendment)
against all expenses, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties, amounts paid or to be paid
in settlement and amounts expended in seeking indemnification granted to such
person under applicable law, this by-law or any agreement with the
Corporation) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has
ceased to be a director, officer or employee and shall inure to the benefit
of his or her heirs, executors and administrators; provided, however, that,
except as provided in Section 2 of this Article VIII, the Corporation shall
indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if such
action, suit or proceeding (or part thereof) was authorized by the board of
directors of the Corporation. Such right shall be a contract right and shall
include the right to be paid by the Corporation expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law then so requires, the
payment of such expenses incurred by a director or officer of the Corporation
in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director
or officer, including, without limitation, service to an employee benefit
plan) in advance of the final disposition of such proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Section or otherwise.
Section 2. Right of Claimant to Bring Suit. If a claim under Section 1
is not paid in full by the Corporation within twenty (20) days after a
written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if such suit is not frivolous or brought in bad
faith, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any, has been tendered to this Corporation) that the claimant
has not met the standards of conduct which make it permissible under the
Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that
claimant has not met the applicable standard of conduct.
Section 3. Non-Exclusivity of Rights. The rights conferred on any
person in Sections 1 and 2 shall not be exclusive of any other right which
such persons may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 4. Indemnification Contracts. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VIII.
Section 5. Insurance. The Corporation shall maintain insurance to the
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against
any such expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
Section 6. Effect of Amendment. Any amendment, repeal or modification
of any provision of this Article VIII by the stockholders and the directors
of the Corporation shall not adversely affect any right or protection of a
director or officer of the Corporation existing at the time of such
amendment, repeal or modification.
ARTICLE IX
AMENDMENTS
The Board of Directors is expressly empowered to adopt, amend or repeal
By-Laws of the Corporation. Any adoption, amendment or repeal of By-Laws of
the Corporation by the Board of Directors shall require the approval of a
majority of the total number of authorized directors. The stockholders shall
also have power to adopt, amend or repeal the By-Laws of the Corporation.
CERTIFICATE OF SECRETARY
I, Glenn H. Stevens, hereby certify:
1. That I am the duly elected and acting Secretary of MAXTOR
CORPORATION, a Delaware corporation (the "Corporation"); and
2. That the foregoing Bylaws comprising twelve (12) pages, constitute
the Amended and Restated Bylaws of the Corporation as duly adopted by the
Board of Directors at a meeting held May 14, 1996.
IN WITNESS WHEREOF, I have hereunder subscribed my name this 6th day of
June, 1996.
/s/ G. H. Stevens
---------------------------------
Glenn H. Stevens, Secretary
PA1\491990.05
MAXTOR CORPORATION
1996 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN
(a) Establishment. The Maxtor Corporation 1996 Stock Option Plan (the
"Plan") is hereby established effective as of May 1, 1996 (the "Effective
Date").
(b) Purpose. The purpose of the Plan is to promote the long-term
interests of the Participating Company Group and its stockholders by
providing an incentive to attract, retain and reward persons performing
services for the Participating Company Group and by providing such persons
with an additional incentive to promote the financial success of the
Participating Company Group.
(c) Term of Plan. The Plan shall continue in effect until the earlier
of its termination by the Board of Directors or the date on which all of the
shares of Stock available for issuance under the Plan have been issued and
all restrictions on such shares under the terms of the Plan and the
Agreements evidencing Awards granted under the Plan have lapsed. However,
all Awards shall be granted, if at all, within ten (10) years from the
Effective Date.
2. DEFINITIONS
Unless otherwise required by the context, the following terms when used
in the Plan shall have the meanings set forth in this Section 2:
(a) OAgreementO: A written option agreement between the Company and
the Participant evidencing an Award in such form as approved by the Board of
Directors pursuant to the Plan.
(b) OAwardO: An award of an Option under the Plan.
(c) OBoard of DirectorsO: The Board of Directors of the Company. If
one or more Committees have been appointed by the Board of Directors to
administer the Plan, "Board of Directors" also means such Committee(s).
(d) OCodeO: The Internal Revenue Code of 1986, as amended from time to
time.
(e) "Committee": The Compensation Committee or other committee of the
Board of Directors duly appointed to administer the Plan and having such
powers as shall be specified by the Board of Directors. Unless the powers of
the Committee have been specifically limited, the Committee shall have all of
the powers of the Board of Directors granted herein, including, without
limitation, the power to amend or terminate the Plan at any time, subject to
the terms of the Plan and any applicable limitations imposed by law.
(f) "Company": Maxtor Corporation, a Delaware corporation, or any
successor thereto.
(g) "Consultant": Any person, including an advisor, engaged by a
Participating Company to render services other than as an Employee or a
Director.
(h) "Director": A member of the Board of Directors or of the board of
directors of any other Participating Company.
(I) "Employee": Any person treated as an employee (including an
officer or a Director who is also treated as an employee) in the records of a
Participating Company; provided, however, that neither service as a Director
nor payment of a director's fee shall be sufficient to constitute employment
for purposes of the Plan.
(j) OExchange ActO: The Securities Exchange Act of 1934, as amended.
(k) OExercise PriceO: The price per share at which the shares of Stock
subject to an Option may be purchased upon exercise of such Option.
(l) OFair Market ValueO: As applied to a specific date, the fair
market value of a share of Stock on such date as determined in good faith by
the Board of Directors in the following manner:
(i) The average of the high and low prices of the Stock (or the mean
of the closing bid and asked prices of the Stock if the Stock is so reported
instead) as reported on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") System, the NASDAQ National Market System or
such other national or regional securities exchange or market system
constituting the primary market for the Stock, on the most recent trading day
to the date in question, or if there are no reported sales on such date, on
the last preceding date on which sales were reported; or
(ii) In the absence of the foregoing, the Fair Market Value shall be
determined by the Board of Directors in its absolute discretion based on an
appraisal of the Stock and after giving consideration to the book value, the
revenues, and the earnings prospects of the Company in light of market
conditions generally. On the occurrence of a Pseudo-IPO Date (as defined in
Section 8 below), Fair Market Value shall be the Pseudo-IPO Price (as defined
in section 8(b)(iii) below). After the occurrence of a Pseudo-IPO Date, Fair
Market Value shall be determined pursuant to this Section 2(l)(ii) assuming
that all shares of preferred stock have been converted to common stock and
that a public market for the Stock exists.
The Fair Market Value determined under one of the preceding paragraphs shall
be final, binding and conclusive on all parties for the purposes of this
Plan.
(m) OISOO: An Option intended to be and which qualifies as an
"incentive stock option", as defined in SectionE422 of the Code or any
statutory provision that may replace such Section.
(n) ONQSOO: An Option not intended or qualified to be an ISO.
(o) OOptionO: Any ISO or NQSO granted under the Plan.
(p) "Outside Director": Any Director of the Company who is not an
Employee.
(q) OOutstanding SecuritiesO: Outstanding shares of Stock or any other
class, series or kind of capital stock or other securities of the Company
which have been issued pursuant to this Plan or otherwise.
(r) "Parent Corporation": Any present or future "parent corporation"
of the Company, as defined in Section 424(e) of the Code.
(s) OParticipantO: A person who has been granted one or more Awards
under the Plan which remain outstanding or who owns shares of Stock as a
result of the exercise of an Option.
(t) "Participating Company": The Company or any Parent Corporation,
Subsidiary Corporation.
(u) "Participating Company Group": At any point in time, all
corporations collectively which are then Participating Companies.
(v) "Rule 16b-3": Rule 16b 3 under the Exchange Act, as amended from
time to time, or any successor rule or regulation.
(w) OSECO: Securities and Exchange Commission.
(x) "Securities Act": The Securities Act of 1933, as amended.
(y) OStockO: The common stock of the Company, as adjusted from time to
time under Section 4(b).
(z) "Subsidiary Corporation": Any present or future "subsidiary
corporation" of the Company or the Parent Corporation, as defined in Section
424(f) of the Code.
(aa) "Ten Percent Owner": A Participant who, at the time an Award is
granted to the Participant, owns stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of a Participating
Company within the meaning of Section 422(b)(6) of the Code.
3. PARTICIPATION
(a) Persons Eligible for Awards. Awards may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing
sentence, "Employees" shall include prospective Employees to whom Awards are
granted in connection with written offers of employment with the
Participating Company Group, and "Consultants" shall include prospective
Consultants to whom Awards are granted in connection with written offers of
engagement with the Participating Company Group. Eligible persons may be
granted more than one (1) Award.
(b) Directors.
(i) Outside Directors. Each person who is (A) an Outside Director
on the Effective Date, or (B) first becomes an Outside Director after the
Effective Date, shall be granted an Award for forty thousand (40,000) shares
on the Effective Date or the date he or she first becomes an Outside
Director; provided, however, that any Director of the Company who previously
did not qualify as an Outside Director shall not receive an Award pursuant to
this Section in the event that such Director subsequently becomes an Outside
Director as a result of the termination of his or her status as an Employee.
Notwithstanding anything herein to the contrary, no Outside Director shall be
eligible to receive an Award other than the grant described in this Section
3(b)(i).
(ii) Directors Serving on Committee. At any time that any class of
equity security of the Company is registered pursuant to Section 12 of the
Exchange Act, no member of a Committee established to administer the Plan in
compliance with the "disinterested administration" requirements of Rule 16b-
3, if any, while a member, shall be eligible to be granted an Award.
(c) Grant Restrictions. Any person who is not an Employee of the
Company or a Parent Corporation or Subsidiary Corporation of the Company on
the effective date of the grant of an Award to such person may be granted
only an NQSO. An ISO granted to a prospective Employee upon the condition
that such person become an Employee shall be deemed granted on the date such
person commences service with a Participating Company, with an Exercise Price
determined as of such date in accordance with Section 5(a).
(d) Fair Market Value Limitation. To the extent that the aggregate
Fair Market Value of stock with respect to which options designated as ISOs
are exercisable by a Participant for the first time during any calendar year
(under all stock option plans of the Participating Company Group, including
the Plan) exceeds One Hundred Thousand Dollars ($100,000), the portion of
such options which exceeds such amount shall be treated as NQSOs. For
purposes of this Section, options designated as ISOs shall be taken into
account in the order in which they were granted, and the Fair Market Value of
stock shall be determined as of the time the option with respect to such
stock is granted. If the Code is amended to provide for a different
limitation from that set forth in this Section, such different limitation
shall be deemed incorporated herein effective as of the date and with respect
to such Options as required or permitted by such amendment to the Code. If
an Option is treated as an ISO in part and as an NQSO in part by reason of
the limitation set forth in this Section, the Participant may designate which
portion of such Option the Participant is exercising and may request that
separate certificates representing each such portion be issued upon the
exercise of the Option. In the absence of such designation, the Participant
shall be deemed to have exercised the ISO portion of the Option first.
4. SHARES SUBJECT TO PLAN
(a) Maximum Shares. Subject to adjustment by the operation of Section
4(b) hereof, the maximum aggregate number of shares of Stock that may be
issued under the Plan shall be ten million two hundred seventy-two thousand
one hundred sixty-eight (10,272,168) and shall consist of authorized but
unissued or reacquired shares of Stock or any combination thereof. If an
outstanding Option for any reason expires or is terminated or canceled or
shares of Stock acquired upon the exercise of an Option are repurchased by
the Company, the shares of Stock allocable to the unexercised portion of such
Option, or such repurchased shares of Stock, shall again be available for
issuance under the Plan.
(b) Adjustment of Shares and Price. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate equitable adjustments shall be made in the number and class of
shares subject to the Plan, in the number and class of shares subject to
future Awards granted to Outside Directors pursuant to Section 3(b)(i) and to
any outstanding Options and in the Exercise Price per share of any
outstanding Options. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 4(b) shall be rounded
up or down to the nearest whole number, as determined by the Board of
Directors, and in no event may the Exercise Price of any Option be decreased
to an amount less than the par value, if any, of the stock subject to the
Option. The adjustments determined by the Board of Directors pursuant to
this Section 4(b) shall be final, binding and conclusive.
5. GENERAL TERMS AND CONDITIONS OF OPTIONS
(a) General. Subject to Section 3(b)(i), the Board of Directors shall
have full and complete authority and discretion, except as expressly limited
by the Plan, to grant Options and to provide the terms and conditions (which
need not be identical among Participants) thereof. The terms and conditions
governing any Award, as determined by the Board of Directors, shall be set
forth in an Agreement consistent with this Plan. In particular, the Board of
Directors shall prescribe the following terms and conditions:
(i) The number of shares of Stock subject to, and the expiration
date(s) of, any Option;
(ii) The vesting schedule of any Option;
(iii) The manner, time and rate (cumulative or otherwise) of
exercise of such Option;
(iv) Whether such Option is to be issued as an ISO or NQSO; and
(v) The restrictions, if any, to be placed upon such Option or upon
shares which may be issued upon exercise of such Option.
(b) Exercise Price. The Exercise Price for each Option shall be
established in the sole discretion of the Board of Directors; provided,
however, that (a) the Exercise Price for an ISO shall be not less than the
Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the Exercise Price for an NQSO shall be not less than eighty-five
percent (85%) of the Fair Market Value of a share of Stock on the effective
date of grant of the Option, and (c) no Option granted to a Ten Percent Owner
shall have an Exercise Price less than one hundred ten percent (110%) of the
Fair Market Value of a share of Stock on the effective date of grant of the
Option. Notwithstanding the foregoing, an Option (whether an ISO or an NQSO)
may be granted with an Exercise Price lower than the minimum exercise price
set forth above if such Option is granted pursuant to an assumption or
substitution for another option in a manner qualifying under the provisions
of Section 424(a) of the Code.
(c) Exercise Period. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board of
Directors and set forth in the Agreement evidencing such Option; provided,
however, that (i) no Option shall be exercisable after the expiration of ten
(10) years after the effective date of grant of such Option, (ii) no ISO
granted to a Ten Percent Owner shall be exercisable after the expiration of
five (5) years after the effective date of grant of such Option, and (iii) no
Option granted to a prospective Employee or prospective Consultant may become
exercisable prior to the date on which such person commences service with a
Participating Company.
6. EXERCISE OF OPTIONS
(a) Payment of Option Exercise Price. Except as otherwise provided
below, payment of the Exercise Price for the number of shares of Stock being
purchased pursuant to any Option shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of shares of Stock owned by the
Participant having a Fair Market Value not less than the Exercise Price,
(iii) by the assignment of the proceeds of a sale or loan with respect to
some or all of the shares being acquired upon the exercise of the Option
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "Cashless Exercise"), (iv) by
such other consideration as may be approved by the Board of Directors from
time to time to the extent permitted by applicable law, or (v) by any
combination thereof. The Board of Directors may at any time or from time to
time, grant Options which do not permit all of the foregoing forms of
consideration to be used in payment of the Exercise Price or which otherwise
restrict one or more forms of consideration.
(A) Tender of Stock. Notwithstanding the foregoing, an Option may
not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any
law, regulation or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board of Directors, an Option may
not be exercised by tender to the Company of shares of Stock unless such
shares either have been owned by the Participant for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(B) Cashless Exercise. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(b) Rights as a Stockholder. A Participant shall have no rights as a
stockholder with respect to any shares of Stock issuable on exercise of any
Option until the date of the issuance of a stock certificate to the
Participant for shares of Stock. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 4(b) hereof.
7. TRANSFER OF CONTROL OF THE COMPANY
(a) Definitions.
(i) An "Ownership Change Event" shall be deemed to have occurred if
any of the following occurs with respect to the Company:
(A) the direct or indirect sale or exchange in a single or series
of related transactions by the stockholders of the Company of more than fifty
percent (50%) of the voting stock of the Company;
(B) a merger or consolidation in which the Company is a party;
(C) the sale, exchange, or transfer of all or substantially all of
the assets of the Company; or
(D) liquidation or dissolution of the Company.
(ii) A "Transfer of Control" shall mean an Ownership Change Event or
a series of related Ownership Change Events (collectively, the "Transaction")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership
of more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding
sentence, indirect beneficial ownership shall include, without limitation, an
interest resulting from ownership of the voting stock of one or more
corporations which, as a result of the Transaction, own the Company or the
Transferee Corporation(s), as the case may be, either directly or through one
or more subsidiary corporations. The Board of Directors shall have the right
to determine whether multiple sales or exchanges of the voting stock of the
Company or multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.
(b) Effect of Transfer of Control on Options. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. Any Options which
are neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date of the
Transfer of Control shall terminate and cease to be outstanding effective as
of the date of the Transfer of Control. Notwithstanding the foregoing,
shares acquired upon exercise of an Option prior to the Transfer of Control
and any consideration received pursuant to the Transfer of Control with
respect to such shares shall continue to be subject to all applicable
provisions of the Agreement evidencing such Option except as otherwise
provided in such Agreement.
8. REPURCHASE OPTIONS AND OBLIGATIONS
(a) Repurchase Options. Shares issued under the Plan may be subject to
a right of first refusal, one or more repurchase options, or other conditions
and restrictions as determined by the Board of Directors in its sole
discretion at the time the Option is granted. The Company shall have the
right to assign at any time any repurchase right it may have, whether or not
such right is then exercisable, to one or more persons as may be selected by
the Company. Upon request by the Company, each Participant shall execute any
agreement evidencing such transfer restrictions prior to the receipt of
shares of Stock hereunder and shall promptly present to the Company any and
all certificates representing shares of Stock acquired hereunder for the
placement on such certificates of appropriate legends evidencing any such
transfer restrictions.
(b) Pseudo-IPO Repurchase.
(i) IPO Trigger Date.
(A) An "IPO Trigger Date" is the date, on or before February 1,
2001, on which all of the following have occurred:
(I) the Company has positive net income, as determined in
accordance with generally accepted accounting principles consistently applied
("Net Income") for four (4) consecutive calendar quarters,
(II) the fair market value of the Company, as determined by an
independent appraisal, is equal to or greater than seven hundred million
dollars ($700,000,000) (the "Target Valuation"), and
(III) the Company receives the written opinion of a nationally
recognized investment banking firm approved by the Board of Directors setting
forth, in its professional opinion, that the Company may undertake an
underwritten public offering of the Outstanding Securities under the
Securities Act (an "IPO").
(B) For purposes of determining the IPO Trigger Date, the Board of
Directors shall engage an independent appraiser to prepare a written
valuation report of the fair market value of the Company as soon as
practicable following the end of the third consecutive calendar quarter in
which the Company has positive Net Income, and provided that the Target
Valuation has been achieved, the Board of Directors shall engage a nationally
recognized investment banking firm (the "Investment Banker") to prepare a
written IPO opinion as soon as practicable following the end of the third
consecutive calendar quarter in which the Company has positive Net Income.
(ii) In the event that an IPO is not completed within six (6) months
of the IPO Trigger Date (unless the Board of Directors determines, in its
sole discretion, that the Company may not complete the IPO within such six-
month period due to adverse financial circumstances following the IPO Trigger
Date including, but not limited to, a downturn in the Company's performance
or, in the opinion of the Investment Banker, adverse overall market
conditions) (the "Pseudo-IPO Date"), the Company shall offer to purchase the
shares of Participants' Stock acquired pursuant to the Plan as provided in
this Section 8(b) (the "Pseudo-IPO Repurchase").
(iii) The Company shall engage a nationally recognized investment
banking firm approved by the Board of Directors to prepare a written
valuation report of the fair market value of a share of Stock determined as
of the Pseudo-IPO Date (the "Pseudo IPO Price"), which valuation shall assume
that all shares of preferred stock have been converted to common stock and
that a public market for the Stock exists. Such report shall be delivered to
the Company within thirty (30) days from the Pseudo-IPO Date. The
determination of such investment banking firm shall be final and binding.
(iv) Within forty-five (45) days from the receipt of the valuation
report, the Company shall deliver a written notice to all of the Participants
specifying (A) the CompanyOs offer to repurchase the shares of the
ParticipantsO Stock acquired pursuant to the Plan which are vested (as
determined in accordance with the Agreement evidencing the Participant's
Option(s)), (B) the price per share to be paid by the Company for such
repurchase (the Pseudo IPO Price set forth in the valuation report) and (C)
the closing date for the repurchase.
(v) On the closing date, each Participant who elects to sell his or
her Stock to the Company must deliver to the Company all stock certificates
representing the Stock that are in the ParticipantOs possession, duly
endorsed for transfer, together with all applicable transfer taxes and any
additional documents as the Company may request to effect the repurchase.
Upon receipt of all such documents, the Company will deliver to the
Participant the aggregate purchase price for his or her Stock by check or
wire transfer.
(vi) As of each anniversary of the Pseudo-IPO Date which occurs
prior to the date on which the Company undertakes an underwritten public
offering of the Outstanding Securities under the Securities Act, the Board of
Directors shall, within forty-five (45) days of the Pseudo-IPO Date
anniversary, determine the Fair Market Value of a share of Stock as of such
anniversary of the Pseudo-IPO Date. Upon such determination of Fair Market
Value of a share of Stock, the Company will deliver a written notice to all
Participants specifying (A) the Company's offer to repurchase any vested
shares of the Participants' Stock acquired pursuant to the Plan (as
determined in accordance with the Agreement evidencing the Participant's
Option(s)), (B) the price per share to be paid by the Company for such
repurchase (as set forth in the valuation report) and (C) the closing date of
such repurchase (which may be the anniversary of the closing date for the
Pseudo-IPO Repurchase, or such other date as the Company may specify). On
such closing date, the Company and applicable Participants will conduct an
exchange in accordance with Section 8(b)(iv) above.
(vii) If an IPO Trigger Date occurs prior to February 1, 2001, but
no Pseudo-IPO Repurchase occurs because the Company may not complete an IPO
within the requisite six (6) month period due to adverse financial
circumstances as provided in Section 8(b)(ii), then a new IPO Trigger Date
shall occur at any subsequent time that the conditions of Section 8(b)(i) are
met prior to February 1, 2001. For purposes of determining a subsequent IPO
Trigger Date under this section 8(b)(vii), the conditions of section
8(b)(i)(A) shall be satisfied if the Company has positive Net Income for the
four (4) consecutive calendar quarters preceding such subsequent IPO Trigger
Date, and it is not necessary to have four (4) consecutive calendar quarters
of positive Net Income since the last IPO Trigger Date.
9. RESTRICTIONS ON TRANSFERS; GOVERNMENT REGULATIONS
(a) Options Not Transferable. During the lifetime of the Participant,
an Option shall be exercisable only by the Participant or the Participant's
guardian or legal representative. No Option may be assigned, encumbered, or
transferred, except, in the event of the death of a Participant, by will or
the laws of descent and distribution.
(b) Government Regulations. This Plan, the granting of Awards under
this Plan and the issuance or transfer of Stock (and/or the payment of money)
pursuant thereto are subject to all applicable foreign, federal and state
laws, rules and regulations and to such approvals by any regulatory or
governmental agency (including without limitation "no action" positions of
the SEC) which may, in the opinion of counsel for the Company, be necessary
or advisable in connection therewith. Without limiting the generality of the
foregoing, no Awards may be granted under this Plan, and no Stock shall be
issued by the Company, nor cash payments made by the Company, pursuant to or
in connection with any such Award, unless and until, in each such case, all
legal requirements applicable to the issuance or payment have, in the opinion
of counsel to the Company, been complied with. In connection with any stock
issuance or transfer, the person acquiring the shares shall, if requested by
the Company, give assurances satisfactory to counsel to the Company in
respect of such matters as the Company may deem desirable to assure
compliance with all applicable legal requirements. The granting of Awards
under this Plan and the issuance of Stock pursuant thereto are subject to
compliance with all applicable foreign, federal, and/or state laws or
regulations with respect to such securities. No Option may be exercised by a
Participant if the issuance of Stock pursuant to such Option upon such
exercise would constitute a violation of any applicable foreign, federal, or
state securities law, rule or regulation or other applicable law or
regulation. The inability of the Company to obtain from any regulatory body
having the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares subject to the Option
shall relieve the Company of any liability in respect of the failure to issue
or sell such shares as to which such requisite authority shall not have been
obtained.
10. TAX WITHHOLDING
The Company shall have the right to withhold from amounts due
Participants, or to collect from Participants directly, the amount which the
Company deems necessary to satisfy any taxes required by law to be withheld
at any time by reason of participation in the Plan, and the obligations of
the Company under the Plan shall be conditional on payment of such taxes.
The Participant may, prior to the due date of any taxes, pay such amounts to
the Company in cash, or with the consent of the Board of Directors, in Stock
(which shall be valued at its Fair Market Value on the date of payment). The
Company shall have no obligation to any Participant to determine either (i)
the existence of any tax or (ii) the correct amount of any tax. Without
limiting the generality of the foregoing, in any case where it determines
that a tax is or will be required to be withheld in connection with the
issuance, transfer or vesting of Stock issued under this Plan, the Company
may, pursuant to such rules as the Board of Directors may establish, reduce
the number of shares of Stock so issued or transferred by such number of
Stock as the Company may deem appropriate in its sole discretion to
accomplish such withholding or make such other arrangements as it deems
satisfactory. Notwithstanding any other provision of this Plan, the Board of
Directors may impose such conditions on the payment of any withholding
obligation as may be required to satisfy applicable regulatory requirements,
including, without limitation, Rule 16b 3. The Company shall have no
obligation to deliver shares of Stock, release shares of Stock from an escrow
established pursuant to an Agreement or make any payment pursuant to the Plan
until the Participating Company Group's tax withholding obligations have been
satisfied by the Participant.
11. ADMINISTRATION OF PLAN
(a) Administration by the Board of Directors. The Plan shall be
administered by the Board of Directors. All decisions and determinations of
the Board of Directors shall be final, conclusive and binding upon all
Participants and upon all other persons claiming any rights under the Plan
with respect to any Options.
(b) Board of Directors Authority. In amplification of the Board of
DirectorsO powers and duties, but not by way of limitation, the Board of
Directors shall have full authority and power to:
(i) Construe and interpret the provisions of the Plan and make rules
and regulations for the administration of the Plan not inconsistent with the
Plan;
(ii) Decide all questions of eligibility for Plan participation and
for the grant of Awards;
(iii) Adopt forms of Agreements and other documents consistent with
the Plan;
(iv) Engage agents to perform legal, accounting and other such
professional services as it may deem proper for administering the Plan; and
(v) Take such other actions as may be reasonably required or
appropriate to administer the Plan or to carry out the Board of Directors
activities contemplated by other sections of this Plan.
(c) Disinterested Administration. At any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the "disinterested
administration" requirements of Rule 16b 3.
(d) Indemnification. In addition to such other rights of
indemnification as they may have, members of the Board of Directors and any
officers or employees of the Participating Company Group to whom authority to
act on behalf of the Board of Directors is delegated shall be indemnified by
the Company against the reasonable expenses, including court costs and
reasonable attorneys' fees, actually incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein,
to which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Award granted
hereunder, and against all amounts paid by them in settlement thereof or paid
by them in satisfaction of a judgment in any such action, suit or proceeding,
except where such indemnification is expressly prohibited by applicable law.
12. STOCKHOLDER APPROVAL
The Plan or any increase in the maximum number of shares of Stock
issuable thereunder as provided in Section 4(a) (the "Maximum Shares") shall
be approved by the stockholders of the Company within twelve (12) months of
the date of adoption thereof by the Board of Directors. Options granted
prior to stockholder approval of the Plan or in excess of the Maximum Shares
previously approved by the stockholders shall become exercisable no earlier
than the date of stockholder approval of the Plan or such increase in the
Maximum Shares, as the case may be.
13. AMENDMENT AND TERMINATION
The Board of Directors may terminate or amend the Plan at any time.
However, subject to changes in the law or other legal requirements that would
permit otherwise, without the approval of the Company's stockholders, there
shall be (a) no increase in the maximum aggregate number of shares of Stock
that may be issued under the Plan (except by operation of the provisions of
Section 4(b)), (b) no change in the class of persons eligible to receive
ISOs, (c) no expansion in the class of persons eligible to receive NQSOs, and
(d) no expansion of the Awards which may be granted to Outside Directors. In
any event, no termination or amendment of the Plan may adversely affect any
then outstanding Option or any unexercised portion thereof, without the
consent of the Participant, unless such termination or amendment is required
to enable an Option designated as an ISO to qualify as an ISO or is necessary
to comply with any applicable law or government regulation.
14. MISCELLANEOUS
(a) Employment or Service. Neither the establishment of the Plan nor
any amendments thereto, nor the granting of any Award under the Plan, shall
be construed as in any way modifying or affecting, or evidencing any
intention or understanding with respect to, the terms of the employment or
service of any Participant with the Participating Company Group. Nothing in
the Plan or any Agreement shall confer upon a Participant any right to
continued employment or service with the Participating Company Group or
interfere in any way with any right of the Participating Company Group to
terminate the Participant's employment or service at any time. No person
shall have a right to be granted Awards or, having been selected as a
Participant for one Award, to be so selected again.
(b) Provision of Information. At least annually, copies of the
Company's balance sheet and income statement for the just completed fiscal
year shall be made available to each Participant and purchaser of shares of
Stock upon the exercise of an Option. The Company shall not be required to
provide such information to persons whose duties in connection with the
Company assure them access to equivalent information.
(c) Transfer of Rights. In the event any Participating Company
assigns, other than by operation of law, to a third person, other than
another Participating Company, any of the Participating Company's rights to
repurchase any shares of Stock acquired upon the exercise of an Option, the
assignee shall pay to the assigning Participating Company the value of such
right as determined by the Company in the Company's sole discretion. Such
consideration shall be paid in cash. In the event such repurchase right is
exercisable at the time of such assignment, the value of such right shall be
not less than the Fair Market Value of the shares of Stock which may be
repurchased under such right (as determined by the Company) minus the
repurchase price of such shares. The requirements of this Section 14(c)
regarding the minimum consideration to be received by the assigning
Participating Company shall not inure to the benefit of the Participant whose
shares of Stock are being repurchased. Failure of a Participating Company to
comply with the provisions of this Section 14(c) shall not constitute a
defense or otherwise prevent the exercise of the repurchase right by the
assignee of such right.
(d) No Advice. The Company shall not be responsible for providing any
Participant with legal, business or tax advice. Any legal or tax liabilities
incurred by a Participant as a result of Participant's participation in the
Plan shall be the sole responsibility of the Participant. Participants
should consult their own attorneys and tax advisors with respect to any
questions regarding participation in the Plan.
(e) Written Notice. As used herein, any notices required hereunder
shall be in writing and shall be given on the forms, if any, provided or
specified by the Board of Directors. Written notice shall be effective upon
actual receipt by the person to whom such notice is to be given; provided,
however, that in the case of notices to Participants and their heirs,
legatees and legal representatives, notice shall be effective upon delivery
if delivered personally or three (3) business days after mailing, registered
first class postage prepaid to the last known address of the person to whom
notice is given. Written notice shall be given to the Board of Directors and
the Company at the following address or such other address as may be
specified from time to time:
Maxtor Corporation
211 River Oaks Parkway
San Jose, California 95134
Attn: Secretary
(f) Applicable Law, Severability. The Plan shall be governed by and
construed in all respects in accordance with the laws of the State of
California. If any provisions of the Plan shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall continue to be fully effective.
The undersigned Assistant Secretary of the Company hereby certifies that
the foregoing Maxtor Corporation 1996 Stock Option Plan was duly adopted by
the Board of Directors on May 14, 1996.
/s/ C. Barr-Smith
--------------------
Carlotta Barr-Smith
Assistant Secretary
PLAN HISTORY
May 14, 1996 Board of Directors adopts Plan, with an initial reserve of
10,272,168 shares.
May 14, 1996 Stockholders approve Plan, with an initial reserve of
10,272,168 shares.
Intercompany Loan Agreement
THIS INTERCOMPANY LOAN AGREEMENT (the "Agreement") is made as of this
10th day of April , 1996, by and between Hyundai Electronics America, a
California corporation ("HEA"), and Maxtor Corporation a Delaware corporation
("Maxtor").
RECITALS
1. Maxtor desires to borrow from HEA from time to time such amount or
amounts, not to exceed an aggregate outstanding principal amount of
$100,000,000 at any one time, as it may require to meet its day-to-day
operational expenses and working capital needs.
2. HEA is willing to lend to Maxtor from time to time such amounts or
amounts, subject to certain terms and conditions.
NOW, THEREFORE, HEA and MAXTOR hereby agrees as follows:
Section 1. The Loan.
1.1 Amount and Term of Loan. HEA agrees upon the terms and conditions
of this Agreement, to loan to Maxtor, and Maxtor agrees to borrow from HEA,
such amount or amounts as Maxtor may from time to time require to meet its
operational expenses and working capital needs, which amount or amounts
shall not exceed at any one time an aggregate outstanding principal amount of
$100,000,000 (the "Loan"). Each disbursement made to Maxtor under the Loan
shall be in the minimum amount of $1,000,000 and the maximum of $20,000,000.
1.2 The Note. The Loan will be evidenced by a Promissory Note, in
substantially the form attached hereto as Exhibit A. duly executed and
delivered by Maxtor to HEA (the "Note"). Each disbursement made to Maxtor
under the Loan will be set forth on Attachment 1 to the Note with appropriate
insertions therein, for the principal amount so loaned. The Note will be
payable in accordance with its terms, which are hereby incorporated by
reference in this Agreement, and shall bear interest on the aggregate unpaid
principal amount thereunder at a rate per annum of ten (10) basis points
above HEA's average monthly cost of borrowing (as determined on the date of
the applicable disbursement). Any principal amount which is not paid when
due (whether as stated, by acceleration or otherwise) shall bear additional
interest from and including the date due until the date of payment in full
thereof at a rate per annum equal to 2%. Interest shall be payable quarterly
on the last day of the last month of each calendar quarter and upon payment
in full or any prepayment of the unpaid principal amount thereof.
1.3 Interest and Repayment. Maxtor shall repay and shall pay interest
on the entire outstanding principal balance of the Loan in accordance with
the Note.
1.4 Prepayment. Maxtor may at any time and from time to time prepay
the Loan in whole or in part without penalty; provided that any such
prepayment shall be in the minimum amount of $500,000.
Section 2. Disbursements.
2.1 General. HEA agrees to make disbursements of the Loan at such
times and in such amounts as Maxtor may from time to time request, provided
that the conditions set forth in Section 2.2 below have been satisfied.
2.2 Conditions to Disbursement. The obligation of HEA to disburse any
portion of the Loan shall be subject to the following conditions:
(a) Maxtor shall have duly executed the Note and appropriate insertions
evidencing the amount of the disbursement shall have been made on Attachment
1 to the Note.
(b) No Event of Default (defined in Section 5.1) shall have occurred
and be continuing and no event which with notice or lapse of time or both
would become an Event of Default, shall have occurred and be continuing.
(c) The representations and warranties of Maxtor contained in Section
4.1 shall be true on and as of the date of the disbursement.
(d) No material adverse change shall have occurred and be continuing
with respect to the assets, operations, financial condition or prospects of
Maxtor.
(e) The Proposed disbursement would not cause the outstanding principal
balance of the Loan to exceed $100,000,000.
(f) All other bank loan lines available to Maxtor have been exhausted,
excluding portion of the line set aside for letters of credit and lease
equipment line.
Section 3. Term of Agreement.
This Agreement shall be in full force and effect from the date set forth
above and shall terminate at the end of one (1) year thereafter, unless
extended for a longer period upon mutual written agreement of the parties in
accordance with Section 6.5 hereof.
Section 4. Representations and Warranties.
4.1 Representations and Warranties of Maxtor. Maxtor hereby represents
and warrants to HEA as follows:
(a) On and as of the date of this Agreement, Maxtor is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite power and authority to own and
operate its properties and assets and to carry on its business as now
conducted and as presently proposed to be conducted and to execute and
deliver, and to perform its obligations under, this Agreement and the Note.
(b) This Agreement and the Note, and all actions contemplated to be
taken thereunder, have been duly authorized by all necessary corporate and
other actions required on the part of Maxtor.
(c) The execution and delivery of this Agreement and the Note, and the
taking of any and all actions contemplated thereby, will not constitute a
breach or default under, or be in conflict with, any contractual or other
obligation by which Maxtor is bound.
4.2 Representation and Warranties of HEA. HEA hereby represents and
warrants to Maxtor as follows:
(a) On and as of the date of this Agreement, HEA is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California and has all requisite power and authority to own and operate
its properties and assets and to carry on its business as now conducted and
as presently proposed to be conducted and to execute and deliver, and to
perform its obligations under, this Agreement.
(b) This Agreement and all actions contemplated to taken thereunder,
have been duly authorized by all necessary corporate and other actions
required on the part of HEA.
(c) The execution and delivery of this Agreement and the taking of any
and all actions contemplated thereby, will not constitute breach or default
under, or be in conflict with, any contractual or other obligation by which
HEA is bound.
Section 5. Defaults and Remedies
5.1 Events of Default. Any of the following events shall constitute an
"Event of Default".
(a) Failure of Maxtor to pay when due any principal, interest or other
amounts owing pursuant to this Agreement or the Note;
(b) Failure of Maxtor to pay when due (beyond any period of grace
allowed with respect thereto) any principal, interest or other amounts owing
with respect to any other borrowed money obligation, or if the holder of such
other obligation declares, or may declare, such obligation due prior to the
stated maturity thereof;
(c) If any representation or warranty made by Maxtor in any agreement,
document or instrument delivered in connection with this Agreement or the
indebtedness evidenced hereby proves to be false in any material respect when
made;
(d) If Maxtor violates any other covenant, agreement or condition
contained in any agreement, document or instrument executed in connection
with the Loan, including but not limited to, the Note, and such violation
shall continue for a period of 15 days after notice of such violation is
given by HEA to Maxtor; provided, however, that if any such violation by its
nature cannot reasonably be cured within such 15-day period, no Event of
Default shall be deemed to have occurred or exist if and so long as Maxtor
shall commence good faith efforts to effect such cure within such 15-day
period and shall diligently and continuously prosecute the same to
completion;
(e) If Maxtor admits in writing its inability to pay its debts as they
mature, applies to any tribunal for the appointment of a trustee or receiver
of any substantial part of its assets, or commences any proceedings with
respect to itself under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution, liquidation or other similar
law of any jurisdiction;
(f) If any such application or any such proceedings described in (e)
above are filed or commenced against Maxtor and Maxtor indicates its
approval, consent or acquiescence, or an order is entered adjudicating Maxtor
bankrupt or insolvent, or approving the application or petition in any such
proceedings, and such order remains in effect for 30 days;
(g) If Maxtor executes and delivers a definitive agreement with respect
to the sale of all or substantially all of its assets, the merger of Maxtor
with another entity, whether or not Maxtor is the surviving entity, or the
reorganization of Maxtor whereby over 50% of the equity ownership of Maxtor
is exchanged for cash, securities of another entity or other property;
(h) If HEA owns beneficially or of record less than 50% of the voting
power of Maxtor or
(I) If the Board of Director of Maxtor approves the dissolution or
winding up of Maxtor.
5.2 Remedies. Upon the occurrence and during the continuance of an
Event of Default, HEA at its option and with notice as provided in Section
6.1 below to Maxtor may do any one or more of the following:
(a) Declare all indebtedness arising hereunder immediately due and
payable and credit any sums received thereafter in such manner as it elects
upon such indebtedness. Such application shall not operate to waive or cure
any default existing under this Agreement or to invalidate any notice of
default or any action pursuant to such notice and shall not prejudice any
rights of HEA under the Note or any other agreement or document contemplated
in or by this Agreement. Upon such declaration HEA shall be released from
all obligations to Maxtor to advance additional amounts under this Agreement.
(b) Withhold any one or more disbursements of the Loan proceeds until
the default is cured; and/or
(c) Exercise any or all rights and remedies granted pursuant to this
Agreement, the Note and/or any other agreement or document contemplated in or
by this Agreement or otherwise permitted by law.
Section 6. Miscellaneous.
6.1 Notices. All notices and communications required or permitted
under this Agreement must be in writing and must be either hand-delivered,
telecopied, sent by registered or certified first-class mail, postage pre-
paid, or sent by nationally recognized express courier service. Such notices
and communications will be deemed to have been given upon receipt, if hand-
delivered or sent by telecopy., five (5) days after mailing if sent by mail,
and one (1) day after dispatch if sent by express courier, to the address of
the receiving party set forth at the signature page of this Agreement or at
such other address as may be specified by a notice given in accordance with
Section 6.1.
6.2 Governing Law; Severability. This Agreement will be governed by
and construed in accordance with the laws of the State of California
excluding those laws pertaining to conflicts of laws. If any provision of
this Agreement is determined by a court of competent jurisdiction to be
unlawful or unenforceable in any jurisdiction, then such provision will be
enforced to the maximum extent permissible under applicable law, and the
remaining provisions of this Agreement will remain in full force and effect.
6.3 Successors and Assigns. This Agreement and the Note shall be
binding upon and shall inure to the benefit of Maxtor and HEA and their
respective successors and assigns, except that neither party will have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the other party.
6.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so delivered will be deemed an original, and
all of which will constitute but one and the same instrument.
6.5 Amendment; Waiver. This Agreement and the Note may not be amended
or modified except by a writing executed by Maxtor and HEA. No right under
this Agreement may be waived except by a writing signed by the party waiving
such right, and no waiver of one breach of this Agreement will constitute a
waiver of subsequent breaches of the same or of a different nature.
6.6 Entire Agreement. This Agreement and the exhibits hereto (each of
which are incorporated herein) constitute the entire agreement and
understanding of the parties regarding the subject matter hereof and
supersede all prior and contemporaneous agreements or understandings, whether
written or oral, with respect thereto.
IN WITNESS WHEREOF, Maxtor and HEA have each caused this Agreement to
be executed and delivered on the date first set for above.
HYUNDAI ELECTRONICS AMERICA MAXTOR CORPORATION
By: By:
--------------------------------- --------------------------------
Its: Its:
-------------------------------- -------------------------------
Address: 510 Cottonwood Drive Address: 211 River Oaks Parkway
Milpitas, CA 95035 San Jose, CA 95134
Telecopier No:(408) 232-8101 Telecopier No:(408) 432-4480
Exhibit A
PROMISSORY NOTE
$100,000,000 April 10, 1996
For value received, Maxtor Corporation , a Delaware corporation (the
"Company"), hereby promises to pay to the order of Hyundai Electronics
America, a California corporation (the "Holder"), such aggregate amount as
may be advanced hereunder (as reflected on Attachment 1) up to the principal
sum of One Hundred Million United States Dollars (U. S. $100,000,000),
together with interest as set forth in Section 2 below, in immediately
available funds at the address of the Holder, or at such other office within
the United States as the Holder may designate, from time to time, for notices
to be delivered to the Holder pursuant to Section 6.1 below.
This Note shall be subject in all respects to the terms of the Loan
Agreement referred to below and to the following terms and conditions:
1. Term. Subject to Section 3 below, the unpaid principal amount
outstanding, as reflected on Attachment 1, together with accrued interest on
this Note, shall be due and payable on April 10, 1997, or such later date as
is the termination date of the Loan Agreement (as defined below).
2. Interest. The Company promises to pay interest on the unpaid
principal amount outstanding from time to time hereunder until such principal
amount is paid in full, at a rate per annum equal to ten (10) basis points
above HEA's average monthly cost of borrowing (as determined on the date of
the applicable disbursement). Interest under this Note shall be calculated
on the basis of the actual number of days elapsed over three hundred and
sixty (360) days. All interest accrued under this Note shall be payable on a
calendar quarter basis on the last day of the last month of each calendar
quarter and upon payment in full or any prepayment of the principal amount
outstanding hereunder.
3. Right to Prepay. Upon payment of accrued interest on this Note,
the Company may prepay this Note, in whole or in part, from time to time,
without penalty; provided that any such prepayment shall be in the minimum
amount of $500,000.
4. Loan Agreement. This Note is the Note referred to in, and is
entitled to the benefits of, that certain Intercompay Loan Agreement dated
April 10, 1996 between the Company and the Holder (the "Loan Agreement"), the
terms of which are hereby incorporated by reference into this Note. If
principal or interest is not paid when due or should any other Events of
Default as specified in the Loan Agreement occur, and all remedies available
to the Holder under the Loan Agreement shall come fully into force.
5. Waiver of Rights. The company hereby waives grace (except as
expressly provided herein), demand, presentment for payment, notice of
demand, notice of non-payment or dishonor, protest and notice of protest, and
shall pay all costs of collection when incurred, including, without
limitation, reasonable attorney's costs and other expenses. The right to
plead any and all statutes of limitation as a defense to any demands
hereunder is hereby waived to the fullest extent permitted by law.
6. Miscellaneous.
6.1 Notices. All notices and communications required or permitted
under this Note must be in writing and must be either hand-delivered,
telecopied , sent by registered or certified first-class mail, postage pre-
paid, or sent by nationally recognized express courier service. Such notices
and communications will be deemed to be given upon receipt, if hand-delivered
or sent by telecopy, five (5) days after mailing if sent by mail, and one (1)
day after dispatch if sent by express courier, to the address of the
receiving party in accordance with Section 6.1 of the Loan Agreement.
6.2 Attorney's Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Note, the prevailing party shall be
entitled to reasonable attorney's fees and costs, in addition to any other
relief to which such party may be entitled.
6.3 Heading. The headings of the sections contained in this Note are
inserted for convenience only and do not form a part, or affect the meaning,
construction or scope, hereof.
6.4 Absolute Obligation. No provisions of this Note shall alter or
impair the obligation of the Company, which obligation is absolute and
unconditional, to pay the amount of this Note at the time, place and in the
manner herein described.
6.5 Maximum Rate of Interest. Notwithstanding any other provision of
this Note or any document or instrument executed or delivered in connection
with this Note, interest, fees and the like shall not exceed the maximum rate
permitted by law.
6.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding these laws
pertaining to conflicts of law. Any action against the undersigned
concerning this Note and the indebtedness evidenced hereby may be brought in
any court of competent jurisdiction located in the State of California, and
the undersigned hereby accepts the non-exclusive jurisdiction of any such
court and waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to maintenance of such action.
The Company has caused this Note to be signed in its name by its duly
authorized officers.
MAXTOR CORPORATION
By:
------------------------------
Title:
------------------------------
Attachment 1
Date Amount of Repayment Outstanding Interest
Advance Principal Balance
151058.4/NYL3
EXCERPTS FROM THE EXECUTION COPY OF
RECEIVABLES PURCHASE AND SALE AGREEMENT
Dated as of March 30, 1996
MAXTOR CORPORATION, a Delaware corporation (the "Seller"), CORPORATE
RECEIVABLES CORPORATION, a California corporation (the "Purchaser"), and
CITICORP NORTH AMERICA, INC., a Delaware corporation ("CNAI"), as agent for
the Purchaser and the other Owners (as defined below) (the "Agent"), agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
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):
"Bank Agreement" means the Receivables Purchase and Sale Agreement
dated as of the date hereof among the Seller, Citibank, and CNAI,
individually and as Agent, as the same may from time to time be amended,
modified or supplemented pursuant to the terms thereof.
"Business Day" means any day on which banks are not authorized or
required to close in New York City and, during such period as the Agent
shall specify upon at least one day's prior notice to the Seller, on
which dealings are carried on in the London interbank market.
"Collection Date" means the date following the earlier to occur of
(i) the Termination Date on which all Uncollected Purchase Price for all
Purchased Interests shall have been reduced to zero and each of the
Agent, the Collection Agent, the Owners of the Purchased Interests and
the Indemnified Parties shall have received all Discount, Collection
Agent Fees and other fees and other amounts payable to it hereunder and
under the other Purchase Documents, respectively, with respect to the
Purchased Interests or otherwise and (ii) the date occurring two years
after the Termination Date provided that the Seller, the Company and the
Selling Affiliates, respectively, shall have paid in full all amounts
owed by them hereunder and under the other Purchase Documents prior to
such date.
"Collections" means, with respect to any Receivable, all cash
collections and other cash proceeds of such Receivable, including, without
limitation, all cash proceeds of finance charges and Related Security with
respect to such Receivable, and any Collection of such Receivable deemed to
have been received pursuant to Section 2.04(b), and shall also include all
investments, and all amounts earned as a result of such investments, of the
Collections held by the Agent pursuant to Section 2.04(a).
"Company" means Hyundai Electronics Industries Co., Ltd., a company
incorporated and existing under the laws of the Republic of Korea.
"Contract" means (i) an agreement between the Seller or a Selling
Affiliate and an Obligor, in substantially the form of one of the forms
of written contract set forth in Schedule III hereto or otherwise
approved by the Agent, or in the case of an open account agreement, as
evidenced by one of the forms of invoices set forth in Schedule III
hereto or otherwise approved by the Agent (which approval shall not be
unreasonably withheld), pursuant to or under which such Obligor shall be
obligated to pay for merchandise or services from time to time (whether
such merchandise or services are to be furnished to such Obligor or to
an Affiliate of such Obligor specified in such Contract), and (ii) in
the case of any indebtedness of the type described in clause (ii) of the
definition of the term "Receivable", the agreement or arrangement of the
type described in clause (iii) of the definition of the term "Related
Security" under which such Receivable arose.
"Credit and Collection Policy" means (i) those credit and collection
policies and practices of the Seller in effect on the date hereof and
described in Schedule II hereto, relating to Contracts and Receivables,
and (ii) in the case of any Person becoming a Selling Affiliate after
the date hereof, those credit and collection policies and practices of
such Selling Affiliate in effect on the date on which such Person shall
become a Selling Affiliate and described in Schedule II to the Selling
Affiliate Agreement of such Selling Affiliate, relating to Contracts and
Receivables, in each case of clauses (i) and (ii) as modified in
compliance with Section 5.03(c).
"Debt" means (i) indebtedness for borrowed money, (ii) obligations
evidenced by bonds, debentures, notes or other similar instruments,
(iii) obligations with a term in excess of 90 days to pay the deferred
purchase price of property or services, (iv) obligations as lessee under
leases which shall have been or should be, in accordance with generally
accepted accounting principles, recorded as capital leases, and (v)
obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire,
or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in
clauses (i) through (iv) above.
"Default Ratio" for any Fiscal Month means the ratio (expressed as a
percentage) that is the average of the ratios computed as of the last
day of such Fiscal Month and the last day of the two immediately
preceding Fiscal Months, respectively, by dividing (i) the aggregate
Outstanding Balance of all Receivables that were owed by Designated
Obligors and were Defaulted Receivables on such day or would have been
Defaulted Receivables on such day had they not been written off the
books of the Seller (or in the case of Receivables other than Subject
Receivables, the applicable Selling Affiliate) during such Fiscal Month
by (ii) the aggregate Outstanding Balance of all Receivables owed by
Designated Obligors on such day.
"Eligible Receivable" means, at any time and with respect to any
Purchased Interest, a Receivable:
(i) the Obligor of which is a United States resident, is not an
Affiliate of any of the parties hereto or of any Selling Affiliate
at such time, and is not a government or a governmental subdivision
or agency;
(ii) the Obligor of which on the Purchase Date for such Purchased
Interest is a Designated Obligor;
(iii) the Outstanding Balance of which, when added to the sum of
(x) the aggregate Outstanding Balance of the other Receivables owed
by the Obligor of such Receivable which are proposed to be Subject
Receivables for such Purchased Interest plus (y) the aggregate
Outstanding Balance of Subject Receivables owed by such Obligor for
all other Purchased Interests existing at such time, does not
exceed (A) the product of (1) the Concentration Limit multiplied by
(2) the aggregate Outstanding Balance of all Receivables (including
such Receivable) which are proposed to be Subject Receivables for
such Purchased Interest plus the aggregate Outstanding Balance of
Subject Receivables for all other Purchased Interests existing at
such time, in the case of this clause (2) to the extent such
Receivables satisfy at such time all criteria set forth in this
definition other than this clause (iii) and to the extent such
Subject Receivables were Eligible Receivables on the Purchase Date
therefor, or (B) the sum of the Special Concentration Limit at such
time for such Obligor plus the product set forth in clause (A)
above, as the case may be;
(iv) the Obligor of which on the Purchase Date for such Purchased
Interest is not the Obligor of any Defaulted Receivables in an
aggregate amount in excess of 10% of the aggregate Outstanding
Balance of all Subject Receivables of such Obligor;
(v) which on the Purchase Date for such Purchased Interest is not
a Defaulted Receivable or Delinquent Receivable;
(vi) which, according to the Contract related thereto, is required
to be paid in full either (x) within 60 days of the original
billing date therefor, or (y) within more than 60 days, but not
more than 90 days, of the original billing date therefor, provided
that in the case of this clause (y) the aggregate Outstanding
Balance of such Receivable, when added to the sum of (1) the
aggregate Outstanding Balance of the other Receivables which are
proposed to be Subject Receivables for such Purchased Interest and
are required to be paid in full within more than 60 days, but not
more than 90 days, of the original billing date therefor plus (2)
the aggregate Outstanding Balance of the Subject Receivables for
all other Purchased Interests existing at such time which Subject
Receivables are required to be paid in full within more than 60
days, but not more than 90 days, of the original billing date
therefor, does not exceed 5% of the aggregate Outstanding Balance
of such Receivables (including such Receivable) plus Subject
Receivables for all other Purchased Interests existing at such
time, to the extent such Receivables satisfy at such time all
criteria set forth in this definition other than this clause (vi)
and to the extent such Subject Receivables were Eligible
Receivables on the Purchase Date therefor, provided that in the
case of any Receivable of the type described in clause (ii) of the
definition of the term "Receivable", the original billing date
therefor shall be the original date on which the Original Obligor
thereof shall have been billed in connection with such Receivable;
(vii) which is an account receivable representing all or part of
the sales price of merchandise, insurance and services within the
meaning of Section 3(c)(5) of the Investment Company Act of 1940,
as amended;
(viii) a purchase of which with the proceeds of notes would
constitute a "current transaction" within the meaning of Section
3(a)(3) of the Securities Act of 1933, as amended;
(ix) which is an "account" within the meaning of Section 9-106 of
the UCC of the jurisdiction[s] the law of which governs the
perfection of the interest created by a Purchased Interest;
(x) which is denominated and payable only in United States dollars
in the United States;
(xi) Which is assignable and arises under a Contract which has
been duly authorized, executed and delivered by each of the parties
thereto and which, together with such Receivable, is in full force
and effect and on the Purchase Date for such Purchased Interest
constitutes the legal, valid and binding obligation of the Obligor
of such Receivable enforceable against such Obligor in accordance
with its terms, has not been subordinated by the Seller or the
applicable Selling Affiliate to any other indebtedness of such
Obligor and is not subject to any existing, asserted or effected
dispute, offset, counterclaim or defense whatsoever (except the
discharge in bankruptcy or other insolvency proceeding of such
Obligor);
(xii) which, together with the Contract related thereto, on the
Purchase Date for such Purchased Interest does not contravene in
any material respect any laws, rules or regulations applicable
thereto (including, without limitation, laws, rules and regulations
relating to usury, consumer protection, truth in lending, fair
credit billing, fair credit reporting, equal credit opportunity,
fair debt collection practices and privacy) and with respect to
which no party to the Contract related thereto is in violation of
any such law, rule or regulation in any material respect;
(xiii) with respect to which performance (other than by the
Obligor thereof, or by the Seller or the applicable Selling
Affiliate under any related warranty to the extent not required to
have been performed by the Seller or such Selling Affiliate by the
time of determination) under the related Contract has been
completed;
(xiv) which is, immediately prior to or concurrently with the time
of the Purchase of such Purchased Interest on any Purchase Date,
legally and beneficially owned by the Seller free and clear of any
Adverse Claim except as created hereunder;
(xv) which (A) on the Purchase Date for such Purchased Interest
satisfies all applicable requirements of the applicable Credit and
Collection Policy and (B) complies with such other criteria and
requirements (other than those relating to the collectibility of
such Receivable) as the Agent may from time to time reasonably
specify to the Seller prior to the Purchase Date for such Purchased
Interest; and
(xvi) as to which, at least five Business Days prior to the
Purchase Date for such Purchased Interest, the Agent has not
notified the Seller that the Agent has determined, in its
reasonable discretion, that such Receivable (or class of
Receivables) is not acceptable for purchase by the Purchaser
hereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Event of Insecurity" means any Event of Termination or Incipient
Event of Termination or any failure of any condition set forth in
Section 3.02(c)(iv) to be satisfied.
"Event of Termination" has the meaning specified in Section 7.01.
"Facility Termination Date" means the earlier of March 29, 2001 or
the date of termination of the Facility pursuant to Section 2.03 or
Section 7.01.
"Floor Plan Obligor" means any Obligor referred to in clause (ii) of
the definition of "Obligor" contained in this Section 1.01.
"Incipient Event of Termination" means an event which would
constitute an Event of Termination but for the requirement that notice
be given or time elapse or both.
"Included Foreign Receivable" means, at any time, a Receivable which
is not an Eligible Receivable but would qualify as an Eligible
Receivable except that the Obligor of such a Receivable is a resident of
any Included Foreign Country.
"Indemnified Party" means the Purchaser, Citibank, CNAI, any Owner,
any Participant, the Agent, or any Affiliate of any thereof, and
"Indemnified Parties" means all of the Purchaser, Citibank, CNAI, the
Owners, the Participants, the Agent, and their respective Affiliates.
"Lock-Box Account" means a lock-box account or special depositary
account maintained by the Seller or any Selling Affiliate at a bank for
the purpose of receiving Collections.
"Loss-to-Liquidation Ratio" for any Fiscal Month means the ratio
(expressed as a percentage) that is the average of the ratios computed
as of the last day of such Fiscal Month and the last day of the two
immediately preceding Fiscal Months, respectively, by dividing (i) an
amount equal to the aggregate Outstanding Balance of all Receivables
that were written off by the Seller, or that should have been written
off by the Seller, on or prior to such day and were owed by Designated
Obligors by (ii) the aggregate amount of Collections (other than any
deemed Collections) received on or prior to such day with respect to
Receivables owed by Designated Obligors.
"Obligor" means a Person (other than the Seller or any Selling
Affiliate) either (i) which is obligated to make payments pursuant to a
Contract of the type described in clause (i) of the definition of the
term "Contract" contained in this Section 1.01 or (ii) which has
financed or is obligated to finance (by lending to an Obligor referred
to in clause (i) above, or by purchasing from the Seller or, if
applicable, a Selling Affiliate if the consideration to be paid by such
Person for such purchase is in the form of indebtedness or, in the case
of the Seller, cash), or is a party to any agreement that contemplates
that such Person may so finance, a Receivable originally owed to a
Selling Affiliate.
"Owner" means, for each Purchased Interest, upon its purchase the
Purchaser making such purchase as the purchaser thereof; provided,
however, that, upon any assignment of all or any portion of such
Purchased Interest pursuant to Article IX, the Assignee thereof shall be
the Owner thereof to the extent of such assignment.
"Purchase Date" means, for any Purchased Interest, the date as of
which such Purchased Interest shall be purchased by the Purchaser from
the Seller pursuant to Article II and which may occur only as of the
last day of any Fiscal Month.
"Purchase Documents" means this Agreement, the Assignments, each
Selling Affiliate Agreement from time to time, the Company Agreement,
the Consent and Agreement and the Fee Letter, and "Purchase Document"
means any such document.
"Purchased Interest" means an undivided percentage ownership interest
in (i) all Subject Receivables for such Purchased Interest, (ii) all
Related Security with respect to such Subject Receivables and (iii) all
Collections with respect to, and other proceeds of, such Subject
Receivables. Such undivided percentage interest for such Purchased
Interest shall be computed as
PP + D + HA
NSRB
where:
PP = the Purchase Price for such Purchased Interest.
D = the Discount for such Purchased Interest.
HA = the Holdback Amount for such Purchased Interest.
NSRB = the Net Subject Receivables Balance for such Purchased
Interest.
Such undivided percentage interest for such Purchased Interest shall be
determined pursuant to the provisions of Section 2.02(b).
"Purchase Price" means, for any Purchased Interest, the original
amount paid to the Seller for such Purchased Interest by the Purchaser
pursuant to Section 2.02(b).
"Receivable" means (i) the indebtedness of any Original Obligor under
a Contract of the type described in clause (i) of the definition of the
term "Contract" arising from a sale of merchandise or services by the
Seller or by any Selling Affiliate (whether such merchandise or services
are to be furnished to such Obligor or to an Affiliate of such Obligor
specified in such Contract), including without limitation any such
indebtedness which may be financed by any Floor Plan Obligor, and (ii)
the indebtedness of any Floor Plan Obligor arising from the sale by the
Seller or any Selling Affiliate of any indebtedness originally owed to
any Selling Affiliate and referred to in clause (i) above to such Floor
Plan Obligor under the agreement or arrangement of the type described in
clause (iii) of the definition of the term "Related Security" contained
herein relating to such indebtedness, and in the case of clauses (i) and
(ii) above, includes the right to payment of any interest or finance
charges and other obligations of such Obligor with respect thereto. The
term "Obligor" of any Receivable refers to both the Original Obligor
that owes such Receivable and, if applicable, the Floor Plan Obligor
that finances, or may finance, such Receivable.
"Related Security" means with respect to any Receivable:
(i) all of the Seller's and the Selling Affiliates' interest in
the merchandise (including returned merchandise), if any, relating
to the sale which gave rise to such Receivable;
(ii) all other security interests or liens and property subject
thereto from time to time purporting to secure payment of such
Receivable, whether pursuant to the Contract related to such
Receivable or otherwise, together with all financing statements
signed by an Obligor describing any collateral securing such
Receivable; and
(iii) all floorplan repurchase agreements, repurchase agreements,
inventory financing agreements, and other floorplan arrangements,
and all guarantees, insurance and other agreements or arrangements
of whatever character from time to time supporting or securing
payment of such Receivable whether pursuant to the Contract related
to such Receivable or otherwise.
"Selling Affiliate" means any Affiliate of the Seller which shall
have been identified by the Seller to the Agent, and approved by the
Agent, in writing as a "Selling Affiliate", provided that each such
Affiliate (and, in the case of the Selling Affiliate Agreement, the
Seller) shall have executed and delivered to the Agent a Selling
Affiliate Agreement and a Consent and Agreement hereunder and under the
Bank Agreement, and shall have furnished to the Agent, in form and
substance reasonably satisfactory to the Agent, (i) documents of the
type described in Sections 3.01(b), (c), (d), (e), (f), (g), (h) and (i)
relating to such Affiliate, such Selling Affiliate Agreement and such
Consent and Agreement and, other than in the case of Sections 3.01(b)
and (h), the Seller, (ii) a favorable opinion of counsel to the Seller
and such Affiliate, which counsel shall be reasonably satisfactory to
the Agent, relating to the "true sale" for bankruptcy purposes
transferred from time to time by such Affiliate to the Seller under such
Selling Affiliate Agreement, and (iii) the consent of the Company to the
addition of such Affiliate as a "Selling Affiliate" hereunder and under
the Bank Agreement, a Company Agreement of the Company with respect to
such Affiliate and its Selling Affiliate Agreement, and documents for
the Company of the type described in Sections 3.01(l), (m) and (n)
hereof and of the Bank Agreement and relating to such consent.
"Selling Affiliate Agreement" means a receivables purchase and sale
agreement, in form and substance satisfactory to the Agent, between the
Seller and a Selling Affiliate, as the same may from time to time be
amended, modified or supplemented in compliance with Section 5.03(i).
"Settlement Date" means the eighth Business Day following the last
day of any Fiscal Month.
"Subject Receivable" means, for any Purchased Interest, (i) other
than in the case of any Purchased Interest or any portion thereof for
which the Owner is an Assignee, any Receivable (A) in existence on the
Purchase Date for such Purchased Interest and, if there is an
immediately preceding Purchase Date, billed after such immediately
preceding Purchase Date, and (B) in respect of which the Obligor is a
Designated Obligor on the Purchase Date for such Purchased Interest, and
(ii) in the case of any Purchased Interest or any portion thereof for
which the Owner is an Assignee, any Receivable which was a Subject
Receivable for such Purchased Interest (or such portion thereof) prior
to its assignment to such Assignee, is identified in the related
Assignment and Acceptance as being a Subject Receivable for such
Purchased Interest (or such portion thereof) to the extent so assigned,
and has not been further assigned to any other Assignee, in each case of
clauses (i) and (ii), other than any such Receivable (x) which shall
have been repurchased by the Seller as contemplated by Section 2.04(b)
or (y) with respect to which Collections in the entire amount of the
Outstanding Balance of such Receivable shall have been received in
respect of any Related Security supporting or securing payment of such
Receivable and applied and distributed pursuant to Section 2.04(a) (if
and so long as neither the Agent nor any Owner is at any time required
to return all or any portion of such amount for any reason). The term
"Subject Receivable" without reference to any specific Purchased
Interest, or any specific assignment thereof, means any Subject
Receivable for any Purchased Interest, and the term "Subject
Receivables" without reference to any specific Purchased Interest, or
any specific assignment thereof, means all Subject Receivables for all
Purchased Interests.
"Termination Date" means the earlier of (i) the Facility Termination
Date and (ii) that Business Day which the Seller designates or, if the
conditions precedent in Section 3.02 are not satisfied, such Business
Day which the Agent designates, as the Termination Date by notice to the
Agent (if the Seller so designates) or to the Seller (if the Agent so
designates) at least one Business Day prior to such Business Day.
SECTION 1.02. Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles. All terms used in Article 9 of the UCC in the State
of California, and not specifically defined herein, are used herein as
defined in such Article 9.
SECTION 1.03. Computation of Time Periods. Unless otherwise stated
in this Agreement, in the computation of a period 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 means "to but excluding".
ARTICLE V
GENERAL COVENANTS OF THE SELLER
SECTION 5.01. Affirmative Covenants of the Seller. Until the
Collection Date, the Seller will, unless the Agent shall otherwise consent in
writing:
(a) Compliance with Laws, Etc. Comply in all material respects with
all applicable laws, rules, regulations and orders with respect to it,
its business and properties and all Receivables and related Contracts,
Related Security and Collections with respect thereto.
(b) Preservation of Corporate Existence. Preserve and maintain its
corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified in
good standing as a foreign corporation in each jurisdiction where the
failure to preserve and maintain such existence, rights, franchises,
privileges and qualification would materially adversely affect the
interests of the Owners or the Agent hereunder or in the Receivables or
Related Security, or the ability of the Seller or the Collection Agent
to perform its obligations under any Purchase Document or the ability of
the Seller to perform its obligations under the Contracts.
(c) Audits. (i) At any time and from time to time during regular
business hours and upon reasonable prior notice, permit the Agent, or
its agents or representatives, at the Seller's expense if any Event of
Insecurity shall have occurred and be continuing, and at the Agent's
expense if no Event of Insecurity shall have occurred and be continuing,
(A) to examine and make copies of and abstracts from all books, records
and documents (including, without limitation, computer tapes and disks)
in the possession or under the control of the Seller relating to the
Receivables, the Related Security and the Lock-Box Account activity,
including, without limitation, the related Contracts, and (B) to visit
the offices and properties of the Seller for the purpose of examining
such materials described in clause (A) above, and to discuss matters
relating to the Receivables, the Related Security and the Lock-Box
Account activity or the Seller's or the Selling Affiliates' performance
under the Purchase Documents or under the Contracts with any of the
officers or employees of the Seller having knowledge of such matters,
and (ii) within 90 days after the end of each fiscal year of the Seller,
at the Seller's expense, cause Ernst & Young LLP or Coopers & Lybrand to
perform, and deliver to the Agent a written report of, or permit other
independent public accountants specified by (upon the occurrence and
during the continuance of any Event of Insecurity) or otherwise
acceptable to the Agent to perform and deliver to the Agent a written
report of, an audit with respect to the Subject Receivables and other
Receivables, the Related Security, the Credit and Collection Policies,
the Lock-Box Account activity and the performance by the Seller and the
Selling Affiliates of their respective obligations, covenants and duties
under the Purchase Documents, on a scope and in a form substantially in
the scope and form set forth in Schedule IV hereto.
(d) Keeping of Records and Books of Account. Maintain and implement
administrative and operating procedures (including, without limitation,
an ability to recreate records evidencing Receivables in the event of
the destruction of the originals thereof), and keep and maintain all
documents, books, records and other information, reasonably necessary or
advisable for the collection of all Receivables (including, without
limitation, records adequate to permit the daily identification of each
Receivable and all Collections of and adjustments to each Receivable).
(e) Performance and Compliance with Receivables and Contracts. At
its expense timely and fully perform and comply with all material
provisions, covenants and other promises required to be observed by it
under the Contracts related to the Receivables.
(f) Location of Records. Keep its chief place of business and chief
executive office and the office where it keeps the originals of its
records concerning the Receivables at the address of the Seller referred
to in Section 4.01(j) on the date hereof or, upon 30 days' prior written
notice to the Agent, at any other locations in a jurisdiction within the
United States where all action required by Section 6.05 shall have been
taken.
(g) Credit and Collection Policies. Comply in all material respects
with the applicable Credit and Collection Policy in regard to each
Receivable and the related Contract.
(h) Collections.
(i) Instruct, or cause to be instructed, all Obligors to cause all
Collections to be deposited directly to a Lock-Box Account,
(ii) if the Seller shall actually receive any Collections, deposit
such Collections to a Lock-Box Account by the second Business Day
(or, upon the occurrence and during the continuance of any Event of
Insecurity, the first Business Day) following such receipt or, if
such Collections were paid by the applicable Obligor in respect of
any merchandise which shall not have been shipped at the time of
such payment and the shipping of which shall cause the Receivable
resulting from the sale of such merchandise to arise, by the second
Business Day (or, upon the occurrence and during the continuance of
any Event of Insecurity, the first Business Day) following the
shipping of such merchandise,
(iii) if the Seller shall be deemed to receive any Collections
pursuant to Section 2.04(b), deposit the Owners' respective
allocable shares of such Collections directly to the Agent's
Account (A) if and so long as no Event of Insecurity shall have
occurred and be continuing, on the day of such receipt or deemed
receipt if such day is the second Settlement Date immediately
following the Purchase Date for the Subject Receivable relating to
the Collection so received or deemed to have been received or any
Settlement Date thereafter, or, if such day is not such a
Settlement Date, by the later to occur of the Settlement Date next
succeeding such day or the second Settlement Date immediately
following the Purchase Date for the Subject Receivable relating to
the Collection so received or deemed to have been received, and (B)
if and so long as any Event of Insecurity shall have occurred and
be continuing, promptly upon such receipt or deemed receipt and in
any event no later than one Business Day following such receipt or
deemed receipt, and
(iv) upon the occurrence of any Event of Insecurity, cause the Lock-
Box Banks to cease automatically sweeping Collections from the Lock-
Box Accounts to any accounts other than Lock-Box Accounts.
(i) Acquisition of Pool Receivables from Selling Affiliates. With
respect to each Subject Receivable acquired from any Selling Affiliate
by the Seller, pay to such Selling Affiliate (in accordance with the
Selling Affiliate Agreement of such Selling Affiliate) an amount which
constitutes fair consideration and approximates fair market value for
such Subject Receivable and in a sale the terms and conditions of which
(including, without limitation, the purchase price thereof) reasonably
approximate an arm's-length transaction between unaffiliated parties.
(j) Selling Affiliate Agreements. At its expense, timely and fully
perform and comply in all material respects with all provisions,
covenants and other promises required to be observed by it under the
respective Selling Affiliate Agreements, maintain the respective Selling
Affiliate Agreements in full force and effect, enforce the respective
Selling Affiliate Agreements in accordance with its terms, take all such
action to such end as may be from time to time reasonably requested by
the Agent, and make to any party to the respective Selling Affiliate
Agreements such demands and requests for information and reports or for
action as the Seller is entitled to make thereunder and as may be from
time to time reasonably requested by the Agent.
SECTION 5.02. Reporting Requirements of the Seller. Until the
Collection Date, the Seller will, unless the Agent shall otherwise consent in
writing, furnish to the Agent:
(a) if any capital stock of the Seller shall be listed on any
national securities exchange, or if for the applicable quarter a balance
sheet and statements of income and of cash flows of the type described
in this subsection (a) shall have been prepared for any other reason, 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 Seller, a
consolidated balance sheet of the Seller and its subsidiaries as of the
end of such quarter and consolidated statements of income and of cash
flows of the Seller and its subsidiaries for the period commencing at
the end of the previous fiscal year and ending with the end of such
quarter, certified by the chief financial officer of the Seller;
(b) as soon as available and in any event within 90 days after the
end of each fiscal year of the Seller, a copy of the Seller's annual
audit report containing a consolidated balance sheet of the Seller and
its subsidiaries as of the end of such year and consolidated statements
of income and of cash flows for such year, certified in a manner
acceptable to the Agent by Ernst & Young LLP or other independent public
accountants acceptable to the Agent;
(c) as soon as possible and in any event within five days after the
Seller's chief financial officer, chief accounting officer, treasurer or
assistant treasurer obtains knowledge of the occurrence of each Event of
Termination and each Incipient Event of Termination continuing on the
date of such statement, a statement of such officer of the Seller
setting forth details of such Event of Termination or Incipient Event of
Termination and the action which the Seller has taken and proposes to
take with respect thereto;
(d) if any capital stock of the Seller shall be listed on any
national securities exchange, promptly after the sending or filing
thereof, copies of all reports which the Seller sends to any of its
securityholders, and copies of all reports and registration statements
which the Seller or any subsidiary files with the Securities and
Exchange Commission or any national securities exchange;
(e) promptly and in any event within five Business Days after the
Seller's receipt or delivery thereof, copies of all notices, requests,
reports, certificates, and other information and documents delivered or
received by the Seller from time to time under or in connection with the
respective Selling Affiliate Agreements;
(f) not later than eight Business Days after the last day of each
Fiscal Month, at the request of the Agent, and in any event within five
days after the occurrence of any Event of Termination or Incipient Event
of Termination, a list of the outstanding Subject Receivables for each
Purchased Interest purchased by the Purchaser from time to time
hereunder; and
(g) such other information, documents, records or reports respecting
the Receivables, the Related Security or the Contracts or the condition
or operations, financial or otherwise, of the Seller, the Selling
Affiliates or any of their respective subsidiaries as the Agent may from
time to time reasonably request.
SECTION 5.03. Negative Covenants of the Seller. Until the
Collection Date, the Seller will not, without the written consent of the
Agent:
(a) Sales, Liens, Etc. Except as otherwise provided herein, or
pursuant to the Bank Agreement and except for sales of Subject
Receivables to Floor Plan Obligors pursuant to the Contracts related to
such Subject Receivables for consideration in cash at least equal to the
Outstanding Balance of such Subject Receivables at the respective times
of such sales in the form of Collections received from such Floor Plan
Obligors with respect to such Subject Receivables and applied pursuant
to Section 2.04(a), sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, or create or
suffer to exist any Adverse Claim (except to the extent created by the
Agent or the Purchaser or Owner) upon or with respect to, the Seller's
undivided interest in any Subject Receivable or Related Security or
Collections in respect thereof, or the Seller's interest in any other
Receivable or Related Security or Collections in respect thereof, or
upon or with respect to any related Contract or any Lock-Box Account or
other deposit account to which any Collections of any Receivable are
sent, or any Collateral, or assign any right to receive income in
respect thereof.
(b) Extension or Amendment of Receivables. Except as otherwise
permitted in Section 6.02 if the Seller is the Collection Agent, (i)
extend the terms of any Receivable, or (ii) amend or otherwise modify
the terms of any Receivable, or terminate or permit the termination of,
or amend, modify or waive any term or condition of, any Contract related
thereto, other than in connection with the Seller's standard sales
programs, if in any such case such amendment, modification or waiver
would be reasonably likely to impair the collectibility of any
Receivable or materially adversely affect the rights or interests of the
Agent or the Purchaser or Owner with respect thereto or hereunder;
provided, however, that, except as so permitted in Section 6.02, in no
event shall the Seller amend or otherwise modify the terms of any
Subject Receivable unless the Agent shall have otherwise notified the
Seller.
(c) Change in Business or Credit and Collection Policy. Make any
change in the character of its business or in its Credit and Collection
Policy, which change would, in either case, be reasonably likely to
impair the collectibility of any Receivable.
(d) Change in Payment Instructions to Obligors. Add or terminate
any bank as a Lock-Box Bank or any account as a Lock-Box Account from
those listed in Schedule I hereto, or make any change in its
instructions to Obligors regarding payments to be made to any Lock-Box
Bank, unless the Agent shall have received notice of such addition,
termination or change and undated executed copies of Lock-Box Notices to
each new Lock-Box Bank or with respect to each new Lock-Box Account, as
applicable.
(e) Deposits to Lock-Box Accounts. Deposit or otherwise credit, or
cause or permit to be so deposited or credited, to any Lock-Box Account
cash or cash proceeds other than Collections of Receivables.
(f) Mergers, Etc. Merge with or into 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,
except that the Seller may merge or consolidate with any other Person
provided that (i) immediately after giving effect to such merger or
consolidation, no Event of Termination or Incipient Event of Termination
shall occur and be continuing and (ii) the corporation into which the
Seller shall be merged or consolidated or which is otherwise formed
pursuant to such merger or consolidation shall assume the Seller's
obligations and grants of interests under the Purchase Documents in a
written agreement satisfactory in form and substance to the Agent and
shall furnish to the Agent, together with (and with reference to such
agreement), documents satisfactory in form and substance to the Agent
and of the kinds referred to in subsections (b) through (i), inclusive,
of Section 3.01 in each case giving effect to such merger or
consolidation, and the consent of the Company with respect to such
merger or consolidation in form and substance satisfactory to the Agent.
(g) Change in Corporate Name, Etc. Make any change to its name,
identity, structure or chief executive office, or use any tradenames,
fictitious names, assumed names or "doing business as" names, unless,
prior to the effective date of any such change or use, the Seller
delivers to the Agent (i) UCC financing statements, executed by the
Seller and, if applicable, the Selling Affiliates, necessary to reflect
such change or use and to continue the perfection of the ownership
interests created by the Purchased Interests and the security interest
in the Collateral, and (ii) new Lock-Box Notices executed by the Seller,
necessary to reflect such change and to continue to enable the Agent to
exercise its rights contained in Section 6.03(a), and (iii) in the case
of any such change in its structure, a favorable opinion of Morrison &
Foerster LLP or other counsel of the Seller reasonably satisfactory to
the Agent, in substantially the form of Exhibit E hereto, giving effect
to such change, in each case of clauses (i), (ii) and (iii) together
with such other documents and instruments as the Agent may reasonably
request in connection therewith.
(h) Accounting of Purchases. Prepare any financial statements which
shall account for the transactions contemplated hereby (other than as
contemplated by Section 6.06) in any manner other than the sale of the
Purchased Interests by the Seller to the Purchaser, and will not in any
other respect account for or treat the transactions contemplated hereby
(including, but not limited to, accounting and tax purposes) in any
manner other than as a sale of the Purchased Interests by the Seller to
the Purchaser.
(I) Selling Affiliate Agreements. (i) Cancel or terminate any
Selling Affiliate Agreement or consent to or accept any cancellation or
termination thereof, (ii) amend or otherwise modify any term or
condition of any Selling Affiliate Agreement or give any consent, waiver
or approval thereunder, (iii) waive any default under or breach of any
Selling Affiliate Agreement or (iv) take any other action under any
Selling Affiliate Agreement not required by the terms thereof that would
impair the value of any Subject Receivable or of any Collateral or the
rights or interests of the Seller thereunder or of the Agent or any
Owner or Indemnified Party under any Purchase Document.
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01. Events of Termination. If any of the following events
("Events of Termination") shall occur and be continuing:
(a) (i) The Collection Agent (if the Collection Agent is the Seller
or any Selling Affiliate or any of their respective Affiliates) shall
fail to perform or observe any term, covenant or agreement hereunder
(other than as referred to in clause (ii) of this Section 7.01(a)) and
such failure shall remain unremedied for three Business Days or (ii) the
Collection Agent (if the Collection Agent is the Seller or any Selling
Affiliate or any of their respective Affiliates) or the Seller or any
Selling Affiliate shall fail to make any payment or deposit to be made
by it hereunder or under the Fee Letter or any Selling Affiliate
Agreement, as applicable, when due, in the case of any payment in
respect of any Purchase Price or Discount (unless such Collection Agent
or the Seller or such Selling Affiliate shall have initiated such
payment or deposit by wire transfer on or before the day when due and
the failure of such payment or deposit to have been made when due shall
have been beyond the control of such Collection Agent or the Seller or
such Selling Affiliate, in which case no Event of Termination shall
occur solely as a result of such failure unless and until such payment
or deposit shall also not have been made on the Business Day following
the day when due), or by the first Business Day following the day when
due in the case of any payment or deposit not in respect of any Purchase
Price or Discount; or
(b) The Seller shall fail to perform or observe any term, covenant
or agreement contained in Section 5.01(j) (except that no Event of
Termination shall occur solely as a result of any failure to make a
payment or deposit when due under any Selling Affiliate Agreement unless
such payment shall also not be made within the applicable cure period
set forth in Section 7.01(a)(ii) above), 5.01(i), 5.02(c), 5.03 or
6.03(a) hereof, or any Selling Affiliate shall fail to perform or
observe any corresponding term, covenant or agreement contained in its
Selling Affiliate Agreement (except that no Event of Termination shall
occur solely as a result of any failure to make a payment or deposit
when due under any Selling Affiliate Agreement unless such payment shall
also not be made within the applicable cure period set forth in Section
7.01(a)(ii) above); or
(c) Any representation or warranty or statement made by the Seller
or any Selling Affiliate (or any of their respective officers) under or
in connection with any Purchase Document shall prove to have been
incorrect in any material respect when made; or
(d) The Seller or any Selling Affiliate shall fail to perform or
observe any other term, covenant or agreement contained in any Purchase
Document on its part to be performed or observed and any such failure
shall remain unremedied for 10 days after written notice thereof shall
have been given to the Seller or any Selling Affiliate, as applicable,
by the Agent; or
(e) The Seller or any Selling Affiliate or the Company shall fail to
pay any principal of or premium or interest on any Debt which is
outstanding in a principal amount of at least $5,000,000 in the
aggregate 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 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
(other than by a regularly scheduled required prepayment), redeemed,
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
(f) Any Purchase shall for any reason (other than pursuant to the
terms hereof) cease to create, or any Purchased Interest shall for any
reason cease to be, a valid and perfected first priority undivided
percentage ownership interest to the extent of the pertinent Purchased
Interest in each applicable Subject Receivable and the Related Security
and Collections with respect thereto, or the Assignment with respect to
any Purchased Interest shall for any reason cease to evidence in the
Owner of such Purchased Interest legal and equitable title to, and
ownership of, an undivided percentage ownership interest in Subject
Receivables for such Purchased Interest and Related Security and
Collections with respect thereto to the extent of such Purchased
Interest, or the Agent for the benefit of itself, each Owner and each
other Indemnified Party from time to time shall cease to have a valid
and perfected first priority security interest in the Collateral; or
(g) The Seller or any Selling Affiliate or the Company 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 the Seller or any Selling Affiliate or the
Company 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 60 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 the Seller or
any Selling Affiliate or the Company shall take any corporate action to
authorize any of the actions set forth above in this subsection (g); or
(h) The Default Ratio for any Purchased Interest as at the last day
of any Fiscal Month shall exceed 5%, or the Delinquency Ratio for any
Purchased Interest as at the last day of any Fiscal Month shall exceed
5%, or the Loss-to-Liquidation Ratio for any Purchased Interest as at
the last day of any Fiscal Month shall exceed 1.5%; or
(I) There shall have occurred any event which materially adversely
affects the collectibility of the Subject Receivables, or there shall
have occurred any other event which materially adversely affects the
ability of the Seller or any Selling Affiliate to collect Subject
Receivables or the ability of the Seller or any Selling Affiliate to
perform its obligations under any Purchase Document or Contract; or
(j) 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 Seller or any Selling Affiliate or
any ERISA Affiliate of either thereof related to such ERISA Event)
exceeds $10,000,000; or
(k) The Seller or any Selling Affiliate or any ERISA Affiliate of
either thereof shall have been notified by the sponsor of a
Multiemployer Plan that it has incurred Withdrawal Liability to such
Multiemployer Plan in an amount which, when aggregated with all other
amounts required to be paid to Multiemployer Plans by the Seller or any
Selling Affiliate, respectively, and its ERISA Affiliates as Withdrawal
Liability (determined as of the date of such notification), exceeds
$10,000,000 or requires payments exceeding $10,000,000 per annum; or
(l) The Seller or any Selling Affiliate or any ERISA Affiliate of
either thereof 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 the Seller or any Selling Affiliate, respectively, and
its ERISA Affiliates to all Multiemployer Plans which are then in
reorganization or being terminated have been or will be increased over
the amounts contributed to such Multiemployer Plans for the respective
plan years of such Multiemployer Plans immediately preceding the plan
year in which the reorganization or termination occurs by an amount
exceeding $10,000,000; or
(m) Any material provision of any Purchase Document after delivery
thereof pursuant to Section 3.01 shall for any reason cease to be valid
and binding on the Seller or any Selling Affiliate or the Company, as
applicable to such Purchase Document, or the Seller or any Selling
Affiliate or the Company, as applicable, shall so state in writing; or
(n) The Company shall at any time not own, directly or indirectly,
at least 51% of the issued and outstanding shares of the capital stock
of the Seller and each Selling Affiliate, respectively;
then, and in any such event, the Agent shall, at the request, or may with the
consent, of any Owner, by notice to the Seller declare the Facility
Termination Date to have occurred, whereupon the Facility Termination Date
shall forthwith occur, without demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Seller; provided, however,
that in the event of an actual or deemed entry of an order for relief with
respect to the Seller or any Selling Affiliate under the Federal Bankruptcy
Code or the occurrence of any event described above in subsection (f), the
Facility Termination Date shall automatically so occur, without demand,
protest or any notice of any kind, all of which are hereby expressly waived
by the Seller. Upon any such occurrence of the Facility Termination Date,
the Facility shall terminate, no further Purchases shall be made hereunder,
and, upon its receipt of any Collections from time to time (in a Lock-Box
Account or otherwise), the Collection Agent shall promptly deposit to the
Agent's Account the amounts set aside for the Owners pursuant to the first
sentence of Section 2.04(a). Furthermore, the Agent and the Owners shall
have, in addition to all other rights and remedies under this Agreement or
otherwise, all other rights and remedies provided under the UCC of the
applicable jurisdiction and other applicable laws (to the extent consistent
with an ownership interest in the Subject Receivables), which rights shall be
cumulative.
ARTICLE X
INDEMNIFICATION
SECTION 10.01. Indemnities by the Seller. Without limiting any
other rights which any Indemnified Party may have under any Purchase Document
or under applicable law, the Seller hereby agrees to indemnify each
Indemnified Party from and against any and all claims, losses and liabilities
(including reasonable attorneys' fees, but excluding (a) any amount to the
extent resulting from gross negligence or willful misconduct on the part of
any Indemnified Party, (b) recourse (except as otherwise specifically
provided in this Agreement) for uncollectible Receivables or (c) any income
taxes (other than any withholding taxes in respect of any Included Foreign
Receivable) incurred by such Indemnified Party arising out of or as a result
of any Purchase Document or the ownership of Purchased Interests or the
security interest in Collateral or in respect of any Receivable or any
Contract) (all of the foregoing, to the extent not so excluded, being
collectively referred to as "Indemnified Amounts") resulting from, and shall
pay on demand to each Indemnified Party any and all amounts necessary to
indemnify such Indemnified Party from and against any and all Indemnified
Amounts, resulting from:
(I) any Receivable becoming a Subject Receivable which is not at the
applicable Purchase Date thereof an Eligible Receivable (including
without limitation any Included Foreign Receivable);
(ii) reliance on any representation or warranty or statement made or
deemed made by the Seller or any Selling Affiliate or any of their
respective Affiliates (or any of their respective officers) under or in
connection with any Purchase Document which shall have been incorrect in
any material respect when made;
(iii) the failure by the Seller or any Selling Affiliate to comply
with any applicable law, rule or regulation with respect to any
Receivable or the related Contract, or the nonconformity of any
Receivable or the related Contract with any such applicable law, rule or
regulation;
(iv) the failure to vest in the Owner of a Purchased Interest a
valid and perfected undivided percentage ownership interest, to the
extent of such Purchased Interest, in the Receivables which are, or
purport to be, Subject Receivables for such Purchased Interest and the
Related Security and Collections in respect thereof, or the failure to
vest in the Agent a valid and perfected first priority security interest
in the Collateral, in each case free and clear of any Adverse Claim
(whether existing on the date of the initial Purchase or at any time
thereafter, except to the extent created by the Agent or the Purchaser
or Owner);
(v) the failure of the Seller or any Selling Affiliate to have
filed, or any delay by the Seller or any Selling Affiliate in filing,
financing statements or other similar instruments or documents under the
UCC of any applicable jurisdiction or other applicable laws with respect
to any Receivable which is, or purports to be, a Subject Receivable for
any Purchased Interest and the Related Security and Collections in
respect thereof, whether at the time of the Purchase thereof or at any
subsequent time, or at any time with respect to any Collateral;
(vi) any defense (other than discharge in bankruptcy or other
insolvency proceeding of the Obligor) of the Obligor to the payment of
any Receivable which is, or purports to be, a Subject Receivable
(including, without limitation, a defense based on such Receivable or
the related Contract not being a legal, valid and binding obligation of
such Obligor enforceable against it in accordance with its terms), or
any other claim resulting from the sale of the merchandise or services
related to such Receivable or the furnishing or failure to furnish such
merchandise or services;
(vii) any failure of the Seller or any Selling Affiliate or any of
their respective Affiliates, as Collection Agent or otherwise, to
perform its duties or obligations in accordance with the provisions of
Article VI or to perform its duties or obligations under the Contracts
or under the Purchase Documents;
(viii) any products liability, personal injury or property damage or
other similar or related claim or action of whatever sort allegedly
arising out of or in connection with merchandise, insurance or services
which are the subject of any Contract;
(ix) any investigation, litigation or proceeding related to any
Purchase Document or any other instrument or document furnished pursuant
hereto or the use of proceeds of Purchases or the ownership of Purchased
Interests or the security interest in Collateral or in respect of any
Receivable, Related Security or Contract, in each case other than any
investigation, litigation or proceeding (A) relating solely to any
violation by any Indemnified Party of any banking, bank holding company
or securities laws or any Owner's sale of commercial paper or other
funding source and (B) not relating to or based upon or otherwise
attributable to any act, statement, omission or violation by the Seller,
the Company, any Selling Affiliate or any Affiliate of any thereof;
(x) the failure to pay when due any taxes payable by the Seller or
any Selling Affiliate (other than any Owner's taxes), including without
limitation sales taxes, shipping charges or other similar charges or
taxes due on merchandise or services sold by the Seller or any Selling
Affiliate to Obligors; or
(xi) the commingling of Collections of Subject Receivables at any
time with other funds.
Any amounts subject to the indemnification provisions of this Section
10.01 shall be paid by the Seller to the Agent for the account of the
applicable Indemnified Party promptly but in any event within five Business
Days following demand therefor by the Agent or such Indemnified Party.
MAXTOR CORPORATION
EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
For the Three Years Ended March 30, 1996
(In thousands, except per share data)
Year Ended
- ------------------------------------------------------------------
March 30, March 25, March 26,
1996 1995 1994
- ------------------------------------------------------------------
PRIMARY
Weighted average number of common
shares outstanding during the year 41,354 50,583 32,203
Incremental common shares attributable
to exercise of outstanding options
(assuming proceeds would be used to
purchase treasury stock) - - -
------ ------- -------
Total shares 41,354 50,583 32,203
====== ======= =======
Net income (loss) $(122,765) $(82,222)$(257,589)
======== ======== ========
Net income (loss) per share $ (2.97) $(1.63) $(8.00)
======== ======== ========
FULLY DILUTED
Weighted average number of common
shares outstanding during the period 41,354 50,583 32,203
Incremental common shares attributable
to exercise of outstanding options
(assuming proceeds would be used to
purchase treasury stock) - - -
------ ------ ------
Total shares 41,354 50,583 32,203
====== ====== ======
Net income (loss) $(122,765) $(82,222)$(257,589)
========== ========= =========
Net income (loss) per share $(2.97) $(1.63) $(8.00)
========== ========= =========
Note: The subordinated convertible debentures have an anti-dilutive
effect on earnings per share, therefore the calculation of fully
diluted earnings per share excludes both the share equivalents and the
interest income adjustment elements.
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-2206, 33-21514, 33-32190, 33-18323, 33-18324, 33-38168,
33-38388, 33-43172, 33-44708, 33-56274, 33-56216, 33-56206, 33-56212, 33-
60462, 33-52233, 33-52237, 33-56405, 33-56407 and 33-63295) pertaining to
the Maxtor Corporation Fiscal 1985 Stock Option Plan and Employee Stock
Purchase Plan, the Maxtor Corporation Fiscal 1985 Stock Option Plan, the
Maxtor Corporation Employee Stock Purchase Plan, the Maxtor Corporation
Fiscal 1988 Stock Option Plan, the Maxtor Corporation Fiscal 1986 Outside
Directors Stock Option Plan, the Maxtor Corporation Employee Stock Purchase
Plan, the Maxtor Corporation Fiscal 1988 Stock Option Plan, the Maxtor
Corporation Fiscal 1992 Stock Option Plan, the Maxtor Corporation 1991
Employee Stock Purchase Plan, the Maxtor Corporation Fiscal 1992 Stock
Option Plan, the Maxtor Corporation 1986 Outside Directors Stock Option
Plan, the Maxtor Corporation Employee Stock Purchase Plan, the Maxtor
Corporation Immediately Exercisable Non Qualified Stock Option Agreement,
the Maxoptix Corporation 1989 Stock Option Plan, the Maxtor Corporation
1992 Employee Stock Purchase Plan, the Maxtor Corporation Fiscal 1992 Stock
Option Plan, the Maxtor Corporation 1995 Stock Option Plan, the Maxtor
Corporation Individual Stock Option Agreement and the Maxtor Corporation
1996 Outside Directors Stock Option Plan, respectively, of our report dated
April 25, 1996, with respect to the consolidated financial statements and
schedule of Maxtor Corporation included in the Annual Report (Form 10-K)
for the year ended March 30, 1996.
San Jose, California
June 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-END> MAR-30-1996
<CASH> 52,794
<SECURITIES> 0
<RECEIVABLES> 131,440
<ALLOWANCES> 5,196
<INVENTORY> 155,935
<CURRENT-ASSETS> 346,615
<PP&E> 245,087
<DEPRECIATION> 156,925
<TOTAL-ASSETS> 442,487
<CURRENT-LIABILITIES> 413,143
<BONDS> 100,181
0
0
<COMMON> 0
<OTHER-SE> (71,137)<F1>
<TOTAL-LIABILITY-AND-EQUITY> 442,487
<SALES> 1,268,998
<TOTAL-REVENUES> 1,268,998
<CGS> 1,196,305
<TOTAL-COSTS> 1,196,305
<OTHER-EXPENSES> 181,952<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,849
<INCOME-PRETAX> (119,939)
<INCOME-TAX> 2,826
<INCOME-CONTINUING> (122,765)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (122,765)
<EPS-PRIMARY> (2.97)
<EPS-DILUTED> (2.97)
<FN>
<F1>OTHER -SE INCLUDES ADDITIONAL PAID IN CAPITAL OF $335,599 AND ACCUMULATED
DEFICIT OF $406,736
<F2>OTHER EXPENSES INCLUDE RESEARCH & DEVELOPMENT EXP OF $94,717, SELLING, GENERAL
AND ADMINISTRATIVE EXP OF $82,775 AND OTHER EXPENSES OF $4,460
</FN>
</TABLE>
