<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MAXTOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3572 77-0123732
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
510 COTTONWOOD DRIVE
MILPITAS, CALIFORNIA 95035
(408) 432-1700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL R. CANNON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MAXTOR CORPORATION
510 COTTONWOOD DRIVE
MILPITAS, CALIFORNIA 95035
(408) 432-1700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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GREGORY M. GALLO, ESQ. ALAN L. BELLER, ESQ.
DIANE HOLT FRANKLE, ESQ. RAYMOND B. CHECK, ESQ.
JOSEPH B. HERSHENSON, ESQ. CLEARY, GOTTLIEB, STEEN & HAMILTON
GRAY CARY WARE & FREIDENRICH LLP ONE LIBERTY PLAZA
400 HAMILTON AVENUE NEW YORK, NEW YORK 10006
PALO ALTO, CALIFORNIA 94301-1825 (212) 225-2000
(650) 328-6561
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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=======================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
Common Stock ($0.01 par value)..... shares $ $575,000,000 $198,276
=======================================================================================================================
</TABLE>
(1) Includes shares which the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
SHARES
LOGO
COMMON STOCK
------------------------
Of the shares of Common Stock, par value $0.01 per share (the
"Common Stock") of Maxtor Corporation ("Maxtor" or the "Company") offered
hereby, shares are being offered by the U.S. Underwriters (as
defined) in the United States and Canada (the "U.S. Offering") and
shares are being offered by the International Underwriters (as defined) in a
concurrent offering outside the United States and Canada (the "International
Offering" and, together with the U.S. Offering, the "Offerings"), subject to
transfers between the U.S. Underwriters and the International Underwriters
(collectively the "Underwriters"). The initial public offering price and the
aggregate underwriting discount per share will be identical for the U.S.
Offering and the International Offering. See "Underwriting." The closing of the
International Offering is conditioned upon the closing of the U.S. Offering and
vice versa. See "Underwriting."
Of the shares of the Common Stock offered hereby,
shares are being sold by the Company and shares are being sold by
Hyundai Electronics America ("HEA" or the "Selling Stockholder"). See "Principal
and Selling Stockholders." The Company will not receive any of the proceeds from
the sale of shares by HEA. Upon completion of the Offerings, HEA, which is a
majority-owned subsidiary of Hyundai Electronics Industries Co., Ltd. ("HEI"), a
corporation organized under the laws of the Republic of Korea, will own
approximately % ( % if the Underwriters' over-allotment options are fully
exercised) of the outstanding shares of the Common Stock. See "Risk
Factors -- Control by and Dependence on HEA."
Prior to the Offerings, there has not been a public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $ and $ per share. See "Underwriting" for
information relating to the factors considered in determining the initial public
offering price. The Company intends to apply to have the Common Stock approved
for quotation on the Nasdaq National Market under the proposed symbol
" ."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=====================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
- ---------------------------------------------------------------------------------------------------------------------
Per Share $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Total(3) $ $ $ $
=====================================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $ , payable by the
Company.
(3) The Company and the Selling Stockholder have granted the U.S.
Underwriters and the International Underwriters 30-day options to
purchase up to and additional shares of Common
Stock, respectively, solely to cover over-allotments, if any. If such
options are exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholder will be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are being offered by the several U.S.
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for the
shares of Common Stock offered hereby will be available for delivery on or about
, 1998, at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001, or through the facilities of the Depository Trust Company.
------------------------
SALOMON SMITH BARNEY
HAMBRECHT & QUIST
LEHMAN BROTHERS
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1998
<PAGE> 3
Capitalized terms used in the summary on the following page have the
meanings ascribed to such terms elsewhere in this Prospectus. References in this
Prospectus to "Korea" are to the Republic of Korea. Certain technical terms used
throughout this Prospectus are defined in the Glossary appearing immediately
prior to the Consolidated Financial Statements at the end of this Prospectus.
Maxtor is a registered trademark and the Maxtor logo, DiamondMax and Formula 4
are trademarks, of the Company. All other brand names and trademarks appearing
in this Prospectus are the property of their respective holders.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and the Notes thereto
appearing elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the heading "Risk Factors." Unless otherwise
indicated herein, all information in this Prospectus: (i) assumes no exercise of
the Underwriters' over-allotment options; (ii) has been adjusted to reflect the
automatic conversion of each outstanding share of preferred stock of the Company
into 0.5 of a share of Common Stock upon the closing of the Offerings; (iii) has
been adjusted to reflect a 1-for-2 reverse stock split (the "Reverse Stock
Split") to be effected prior to the Offerings; and (iv) assumes the
authorization of 95.0 million shares of undesignated preferred stock upon the
closing of the Offerings.
Maxtor is a leading provider of hard disk drive storage products for
desktop PC systems. The Maxtor DiamondMax product family consists of 3.5-inch
form factor HDDs with storage capacities which range from approximately 2.1 GB
to 11.5 GB. These products have a number of features including high speed
interfaces for greater data throughput, a robust mechanical design for improved
reliability, MR head technology and a DSP-based electronic architecture that,
when combined, provide industry-leading benchmark performance. The DiamondMax
2880, introduced in February 1998, is Maxtor's fourth generation MR head drive,
the fifth drive utilizing the Company's DSP-based electronic architecture, and
the seventh drive based on the Company's Formula 4 mechanical architecture. The
Company's customers are leading desktop PC OEMs, including Compaq, Dell and IBM;
distributors, such as Ingram; and retailers, such as Best Buy and CompUSA.
During the mid-1980s, the Company was a leading technology innovator in the
HDD industry. Faced with intense competition, the Company pursued all major
product segments in the HDD market, which added significant complexity to the
business and caused the Company to delay or miss a number of key product
introductions. This strategy led to the deterioration of the Company's overall
financial condition which, in turn, led to the sale of a 40% stake in the
Company to HEI and certain of its affiliates in 1994. In early 1996, HEA
acquired the remaining publicly-held shares of the Company's Common Stock and
shortly thereafter, HEA invested in renewed efforts to revitalize the Company.
In July 1996, the Company hired Michael R. Cannon, its current Chief Executive
Officer and President, a 20 year veteran of the HDD industry, to lead the
turnaround of Maxtor. Mr. Cannon immediately took a number of steps to position
the Company to become a significant provider of HDDs to leading desktop PC OEMs
including improving product performance, quality, time-to-market entry,
time-to-volume manufacturing, and refocusing the Company's sales and marketing
effort.
As a result, Maxtor's performance has improved significantly during a
period of severe fluctuations in the overall HDD market. The Company's
restructured manufacturing and product development processes as well as its cost
competitiveness initiatives resulted in the Company achieving one of the fastest
transitions in the industry from HDDs utilizing thin-film head technology to
100% use of MR head technology, while also achieving among the lowest selling,
general and administrative costs as a percentage of revenues in the industry for
the 1997 fiscal year and the first quarter of 1998. This manufacturing and
development process also helped the Company increase its units shipped per
quarter from 1.3 million units in the first quarter of 1997 to 3.5 million units
in the first quarter of 1998, which resulted in Maxtor increasing its market
share of the desktop HDD market in terms of quarterly unit shipments from 5.6%
to 13.4%, according to IDC. The Company's refocused efforts on leading PC OEMs,
such as Compaq, Dell and IBM, resulted in an increase in the Company's revenues
from these PC OEMs from 6.5% of total revenue in the second quarter of 1996 to
51.8% in the first quarter of 1998. Cumulatively, these changes have led to
significantly improved financial results. The Company's revenues grew by 122.5%
from $247.0 million to $549.6 million during the first fiscal quarters of 1997
and 1998, respectively, while improving its gross margins from (2.9)% to 11.3%
during the same period.
According to IDC, the desktop PC market is the largest segment of the
worldwide PC market, accounting for approximately 80% of global PC shipments in
1997. As a result, desktop PCs were the leading source of demand for HDDs,
accounting for more than 75% of all HDD units shipped worldwide in 1997. PC
OEMs, which compete in a market that is consolidating share among the top ten PC
OEMs, accounted for greater than 50% of PC units shipped during 1997 and the
first quarter of 1998. IDC forecasted, as of May
3
<PAGE> 5
1998, that the desktop HDD market will grow from approximately 100 million units
in 1997 to 185 million units in 2001, reflecting a compound annual growth rate
of 16.6%.
Maxtor seeks to be the dominant provider of HDDs to leading PC OEMs,
distributors and retailers. Maxtor's strategy to achieve this goal includes the
following elements: (i) effectively integrating new technology; (ii) leveraging
design excellence; (iii) capitalizing on flexible manufacturing; (iv) increasing
market share with leading PC OEMs; (v) maintaining customer satisfaction; and
(vi) broadening the Company's product portfolio.
HEA owns all of the Company's Series A Preferred Stock and 99.9% of the
total capital stock outstanding immediately prior to the Offerings; immediately
following the Offerings HEA will own approximately % of the outstanding Common
Stock ( % if the Underwriters' overallotment options are exercised in full).
Maxtor has received financial support from HEA and HEI, including cash advances
and guarantees, since 1995 and has received the benefit of various contractual
relationships as a subsidiary, including intellectual property licenses and
supply arrangements from affiliates. Maxtor will not have the benefit of HEA
financial support on many of these contractual relationships after it ceases to
be a majority owned subsidiary of HEA. Maxtor currently is exploring
alternatives to establish replacement credit facilities which will not require
any support from HEA or any of its affiliates. There can be no assurance that
Maxtor will be able to obtain replacement credit facilities or other contractual
rights on similar terms to those currently in effect. In contemplation of the
Offerings, Maxtor, HEA and HEI entered into certain agreements governing certain
ongoing relationships between the parties. Conflicts of interest may arise from
time to time in the future between the Company and HEA or its affiliates in a
number of areas relating to their past and ongoing relationships.
4
<PAGE> 6
THE OFFERINGS
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Common Stock offered by the Company:
U.S. Offering............................................. shares
International Offering.................................... shares
----------
Total............................................. shares
Common Stock offered by HEA:
U.S. Offering............................................. shares
International Offering.................................... shares
----------
Total............................................. shares
Common Stock outstanding after the Offerings(1)(2).......... shares
Common Stock held by HEA immediately after the
Offerings(2).............................................. shares
Proposed Nasdaq National Market symbol......................
</TABLE>
- ---------------
(1) Based on the number of shares outstanding as of , . Excludes
shares of the Common Stock issuable upon the exercise of options
outstanding under the Company's 1996 Amended and Restated Stock Option Plan
with a weighted average exercise price of $ per share. See
"Management -- Benefit Plans," "Description of Capital Stock" and Notes 1
and 10 of Notes to Consolidated Financial Statements.
(2) Assumes no exercise of the Underwriters' over-allotment options.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares
of Common Stock offered by the Company hereby are estimated to be approximately
$ approximately $ if the Underwriters' over-allotment options
are exercised in full), assuming an initial public offering price of $ per
share of Common Stock and after deducting the estimated underwriting discounts
and estimated offering expenses payable by the Company. The Company will not
receive any proceeds from the sale of the shares of Common Stock offered by the
Selling Stockholder. Approximately $255.5 million of the net proceeds to the
Company from the Offerings will be used to repay certain outstanding
indebtedness, including accrued interest, of the Company. The remaining $
million of such net proceeds ($ million if the Underwriters' over-allotment
options are exercised in full) will be available for capital expenditures,
working capital and general corporate purposes. Pending such uses, the net
proceeds to the Company of the Offerings will be invested in investment-grade,
interest-bearing securities. See "Use of Proceeds."
RISK FACTORS
See "Risk Factors" beginning on page 7 for a discussion of certain factors
that should be considered by potential investors.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN MILLIONS)
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<CAPTION>
NINE MONTHS THREE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED -----------------------------
MARCH 30, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1996 1996(1) 1997 1997 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Revenue....................... $1,269.0 $ 798.9 $1,424.3 $247.0 $549.6
Gross profit (loss)........... 72.7 (90.0) 71.4 (7.1) 62.3
Total operating expenses...... 182.0 148.5 168.8 41.5 64.0 (2
Loss from operations.......... (109.3) (238.5) (97.4) (48.6) (1.7)(2)
Interest expense.............. (11.8) (18.1) (36.5) (7.9) (8.8)
Net loss...................... (122.8) (256.3) (109.9)(3) (55.0) (10.3)(2)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
MARCH 29, JUNE 28, SEPTEMBER 27, DECEMBER 27, MARCH 28,
1997 1997 1997 1997 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
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QUARTERLY STATEMENT OF
OPERATIONS DATA:
Revenue....................... $ 247.0 $ 283.1 $ 392.2 $502.0 $549.6
Gross profit (loss)........... (7.1) 2.8 21.5 54.2 62.3
Total operating expenses...... 41.5 40.9 42.2 44.2 64.0 (2
Income (loss) from
operations.................. (48.6) (38.1) (20.7) 10.0 (1.7)(2)
Interest expense.............. (7.9) (8.7) (10.9) (9.0) (8.8)
Net income (loss)............. (55.0) (46.6) (31.4) 23.1(3) (10.3)(2)
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 28, 1998
-----------------------------
ACTUAL AS ADJUSTED(4)
----------- --------------
(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 13.3
Total assets................................................ 634.6
Short-term borrowings, including current portion of
long-term debt(5)......................................... 131.2
Total current liabilities................................... 635.2
Long-term debt and capital lease obligations due after one
year...................................................... 219.3
Total stockholders' equity (deficit)........................ (219.9)
</TABLE>
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(1) The Company changed its fiscal year during the period ended December 28,
1996 to conform to its parent, HEA.
(2) Total operating expenses, loss from operations and net loss for the three
months ended March 28, 1998 reflect a $14.7 million compensation charge
related to the variable accounting features of the Company's 1996 Stock
Option Plan (the "Option Plan"). Without such charge, the Company would have
had total operating expenses of $49.3 million, income from operations of
$13.0 million and net income of $4.4 million. The Option Plan has been
amended and restated (referred to herein as the "Amended Plan") to remove
the variable features and provide for fixed award options. See Note 10 of
Notes to Consolidated Financial Statements.
(3) Includes recovery of a $20.0 million fully-reserved note from International
Manufacturing Services, Inc. ("IMS").
(4) As adjusted to reflect the sale of shares of the Common Stock
offered by the Company hereby, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company;
including repayment of $255.5 million of the Company's outstanding debt.
(5) Includes $55.0 million of short-term borrowings due to affiliates.
6
<PAGE> 8
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
the U.S. federal securities laws that involve risks and uncertainties. The
statements contained in this Prospectus that are not purely historical,
including, without limitation, statements regarding the Company's expectations,
beliefs, intentions or strategies regarding the future, are forward-looking
statements. In this Prospectus, the words "anticipates," "believes," "expects,"
"intends," "future" and similar expressions also identify forward-looking
statements. The Company makes these forward-looking statements based upon
information available on the date hereof, and assumes no obligation to update
any such forward-looking statements. The Company's actual results could differ
materially from those anticipated in this Prospectus as a result of certain
factors including, but not limited to, those set forth in the following risk
factors and elsewhere in this Prospectus. In addition to the other information
in this Prospectus, prospective investors should consider carefully the
following risk factors in evaluating the Company and its business before
purchasing shares of Common Stock in the Offerings.
HISTORY OF OPERATING AND NET LOSSES; ACCUMULATED DEFICIT
During each of the 19 consecutive quarters ended September 27, 1997, the
Company incurred significant operating losses ranging from $125.5 million to
$3.1 million per quarter, with net losses ranging from $130.2 million to $4.5
million, primarily as a result of delayed product introductions, product
performance and quality problems, low manufacturing yields and under-utilization
of manufacturing capacity, high operating expenses, and overall market
conditions in the hard disk drive ("HDD") industry including fluctuations in
demand and declining average selling prices ("ASPs"). As of March 28, 1998, the
Company had an accumulated stockholders' deficit of approximately $783.3
million. While the Company achieved operating profits and positive net income
for the quarter ended December 27, 1997, it recorded operating and net losses
for the fiscal year ended December 27, 1997. The Company also recorded operating
and net losses in the quarter ended March 28, 1998 due to a $14.7 million
compensation expense related to the amendment and restatement of the Option Plan
to remove variable features and provide fixed award options. There can be no
assurance that the factors that led to the Company's history of operating losses
have been overcome or that the Company will achieve profitability on either an
operating or net income basis in any future quarterly or annual periods.
Consequently, recent operating results should not be considered indicative of
future financial performance. See "-- Expected Volatility of Stock Price;
Absence of Current Trading Market for the Common Stock" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; AVERAGE SELLING PRICE EROSION;
MANAGEMENT OF GROWTH
The Company has experienced, and expects to continue to experience,
fluctuations in sales and operating results from quarter to quarter. As a
result, the Company believes that period to period comparisons of its operating
results are not necessarily meaningful, and that such comparisons cannot be
relied upon as indicators of future performance. The Company's operating results
may be subject to significant quarterly fluctuations as a result of a number of
factors, including: (i) the Company's ability to be among the first-to-volume
production with competitive products; (ii) fluctuations in HDD product demand as
a result of the cyclical and seasonal nature of the personal computer ("PC")
industry; (iii) the availability and extent of utilization of manufacturing
capacity; (iv) unanticipated changes in product or customer mix; (v) entry of
new competitors; (vi) the lengthy, complex and difficult process of qualifying
the Company's products with its customers; (vii) cancellation or rescheduling of
significant orders; (viii) deferrals of customer orders in anticipation of new
products or enhancements; (ix) the impact of price protection measures and
return privileges granted by the Company to certain distributors; (x) component
and raw material costs and availability, particularly with respect to components
obtained from sole or limited sources; (xi) the availability of adequate capital
resources; (xii) increases in research and development expenditures to maintain
the Company's competitive position; (xiii) changes in the Company's strategy;
(xiv) personnel changes; and (xv) other general economic and competitive
factors. Moreover, since a large portion of the Company's operating expenses,
including rent, salaries, capital lease and debt payments and equipment
depreciation, are relatively fixed and difficult to reduce or modify, the
adverse effect of any decrease in revenue as a result of fluctuations in product
demand or
7
<PAGE> 9
otherwise will be magnified by the fixed nature of such operating expenses and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, the HDD industry is characterized by rapidly declining ASPs
over the life of a product even for those products which are competitive and
timely-to-market. The Company anticipates that this market characteristic will
continue for the foreseeable future. In general, the ASP for a given product in
the desktop HDD market decreases over time as increases in the supply of
competitive products and cost reductions occur and as technological advancements
are achieved. The rate of ASP decline accelerates when, as is currently the case
in the HDD industry, some competitors lower prices to absorb excess capacity,
liquidate excess inventories, restructure or attempt to gain market share. This
continuing price erosion could have a material adverse effect on the Company's
business, financial condition and results of operations in any given quarter.
In July 1996, the Company began to modify its management and operational
structures. Since the first quarter of 1997, the Company's timely introduction
and volume production of competitive products has resulted in quarterly revenue
growth. Such restructuring activities and revenue growth have placed and are
expected to continue to place a significant strain on the Company's personnel
and resources. The Company's ability to maintain the advantages of the
restructuring and to manage future growth, if any, will depend on its ability to
(i) continue to implement and improve its operational, financial and management
information and control systems on a timely basis; (ii) hire, train, retain and
manage an expanding employee base; and (iii) maintain effective cost controls,
all while being among the first-to-volume production with competitive products.
The inability of the Company's management to maintain the advantages of the
restructuring, to manage future growth effectively and to continue to be among
the first-to-volume production with competitive products could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "-- Risks of Failed Execution; Changing Customer Business
Models" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RISKS OF FAILED EXECUTION; CHANGING CUSTOMER BUSINESS MODELS
PC original equipment manufacturers ("OEMs"), which compete in a market
that is consolidating market share among the top ten PC OEMs accounted for
greater than 50% of the PC units shipped during 1997 and the first quarter of
1998. A majority of the Company's HDDs are sold to PC OEMs. The process of
qualifying the Company's products with these PC OEM customers can be lengthy,
complex and difficult. These PC OEMs use the quality, storage capacity and
performance characteristics of HDDs to select their HDD providers. PC OEMs
typically seek to qualify three or four providers for a given HDD product
generation. To qualify consistently with PC OEMs and thus succeed in the desktop
HDD industry, an HDD provider must consistently execute on its product
development and manufacturing processes in order to be among the first-to-market
entry and first-to-volume production at leading storage capacity per disk with
competitive prices. Once a desktop PC OEM has chosen its qualified HDD vendors
for a given PC product, it generally will purchase HDDs from those vendors for
the life of that product. If a qualification opportunity is missed, the Company
may not have another opportunity to do business with that PC OEM until the next
generation of the Company's products is introduced. The effect of missing a
product qualification opportunity is magnified by the limited number of high
volume PC OEMs. Failure to reach the market on time or to deliver timely volume
production usually results in significantly decreased gross margins due to
rapidly declining ASPs and dramatic losses in market share. Failure to obtain
significant PC OEM customer qualifications for new or existing products in a
timely manner would have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition to developing and qualifying new products, the Company must
address the increasingly changing and sophisticated business needs of its
customers. For example, desktop PC OEMs and other PC suppliers are starting to
adopt build-to-order manufacturing models which reduce their component
inventories and related costs and enable them to tailor their products more
specifically to the needs of their customers. Various PC OEM customers also are
considering or have implemented a "channel assembly" model in which the PC OEM
ships a minimal computer system to the dealer or other assembler, and component
suppliers (including HDD manufacturers such as the Company) ship parts directly
to the dealer or other assembler for installation at its location. Finally,
certain PC suppliers have adopted just-in-time inventory management
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processes which require component suppliers to maintain inventory at or near the
PC supplier's production facility. Together, these changing models increase the
Company's capital requirements and costs, complicate the Company's inventory
management strategies, and make it more difficult to match manufacturing plans
with projected customer demand, thereby increasing the risk of inventory
obsolescence and ASP erosion as a result of later shipments to customers. The
Company's failure to manage its manufacturing output or inventory in response to
these new customer demands and other similar demands that may arise in the
future as customers further change their ordering and assembly models could lead
to a decline in the demand for the Company's products and a loss of existing or
potential new customers and could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Customer Concentration," "-- Transition to and Dependence on Information
Systems; Year 2000 Problem," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Industry Background -- HDD
Market Challenges," "-- Customers and Sales Channels" and "-- Sales and
Marketing."
HIGHLY COMPETITIVE INDUSTRY
Although the Company's share of the desktop HDD market has increased
steadily since the first quarter of 1997, this market segment and the HDD market
in general are intensely competitive and characterized by rapid technological
change, rapid rates of product and technology obsolescence, changing customer
requirements, dramatic shifts in market share and significant erosion of ASPs.
Consequently, there can be no assurance that the Company will be able to improve
on, or prevent the erosion of, the Company's present share of the desktop HDD
market.
The Company presently competes primarily with manufacturers of 3.5-inch
HDDs, including Fujitsu Limited ("Fujitsu"), Quantum Corporation ("Quantum"),
Samsung Company Limited ("Samsung"), Seagate Technology, Inc. ("Seagate") and
Western Digital Corporation ("Western Digital"), many of which have a larger
share of the desktop HDD market than the Company. Other companies, such as
International Business Machines Corporation ("IBM"), will be significant
competitors of the Company in one or more of the markets into which the Company
plans to expand its product portfolio, and could be significant competitors of
the Company in its current market should they choose to commit significant
resources to providing HDDs for the desktop HDD market.
Most of the Company's competitors offer a broader array of product lines
and have significantly greater financial, technical, manufacturing and marketing
resources than the Company. Unlike the Company, certain of the Company's
competitors manufacture a significant number of the components used in their
HDDs and thus may be able to achieve significant cost advantages over the
Company. Certain competitors have preferred vendor status with many of the
Company's customers, extensive marketing power and name recognition, and other
significant advantages over the Company. In addition, such competitors may
determine, for strategic reasons or otherwise, to consolidate, lower the prices
of their products or bundle their products with other products. The Company's
competitors have established and may in the future establish financial or
strategic relationships among themselves or with existing or potential
customers, resellers or other third parties. New competitors or alliances could
emerge and rapidly acquire significant market share.
The Company believes that important competitive factors in the HDD market
are quality, storage capacity, performance, price, time-to-market entry,
time-to-volume production, PC OEM product qualifications, reliability, and
technical service and support. The failure of the Company to develop and market
products that compete successfully with those of other suppliers in the HDD
market would have a material adverse effect on the Company's business, financial
condition and results of operations.
FLUCTUATION IN PRODUCT DEMAND; FOCUS ON SINGLE MARKET
The Company presently offers a single product family which is designed for
the desktop PC segment of the HDD industry. The demand for the Company's HDD
products is therefore dependent to a large extent on the overall market for
desktop PCs which, in turn, is dependent on PC life cycles, demand by end-users
for increased PC performance and functionality at lower prices (including
increased storage capacity), availability of substitute products, including
laptop PCs, and overall foreign and domestic economic conditions. The
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desktop PC and HDD markets are characterized by periods of rapid growth followed
by periods of oversupply, and by rapid price and gross margin erosion. This
environment makes it difficult for the Company and its desktop PC OEM customers
to reliably forecast demand for the Company's products. The Company does not
enter into long-term supply contracts with its desktop PC OEM customers, and
such customers often have the right to defer or cancel orders with limited
notice and without significant penalty. If demand for desktop PCs falls below
the customers' forecasts, or if customers do not manage inventories effectively,
they may cancel or defer shipments previously ordered from the Company.
Moreover, while there has been significant growth in the demand for desktop PCs
over the past several years, according to International Data Corporation
("IDC"), the growth rate in the desktop PC market has slowed in recent quarters.
Because of the Company's reliance on the desktop segment of the PC market, the
Company will be more strongly affected by changes in market conditions for
desktop PCs than would a company with a broader range of products. Any decrease
in the demand for desktop PCs could lead in turn to a decrease in the demand for
the Company's HDD products, which would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Customer Concentration" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
Although the desktop PC segment is currently the largest segment of the HDD
market, the Company believes that over time, market demand may shift to other
market segments that may experience significantly faster growth. In addition,
the Company believes that to remain a significant provider of HDDs to major PC
OEMs, the Company will need to offer a broader range of HDD products for the
existing and new product categories of its OEM customers. For these reasons, the
Company will need to develop and manufacture new products which address
additional HDD market segments and emerging technologies to remain competitive
in the HDD industry. Examples of potentially important market segments that the
Company's current products are not positioned to address include: (i) the
client-server market, which may continue to grow in part as a result of the
emerging market trend toward "network computers" (which utilize central servers
for data storage and thereby reduce the need for desktop storage); (ii) lower
cost (typically below $1,000), lower performance PC systems principally for the
consumer marketplace; and (iii) laptop PCs. Significant technological innovation
and re-engineering will be required for the Company to produce products that
effectively compete in these and other new or growing segments of the HDD
market, and there can be no assurance that the Company will be able to design or
produce such new products on a timely or cost-effective basis, if at all, while
maintaining the required product quality or that such products or other future
products will attain market acceptance. Certain of the Company's competitors
have significant advantages over the Company in one or more of these and other
potentially significant new or growing market segments.
RAPID TECHNOLOGICAL CHANGE AND PRODUCT DEVELOPMENT
The HDD industry is characterized by rapid technological change, rapid
rates of product and technology obsolescence, changing customer requirements,
dramatic shifts in market share and significant erosion of ASPs, any of which
may render the Company's products obsolete. The Company's future results of
operations will depend on its ability to enhance current products and to develop
and introduce volume production of new competitive products on a timely and
cost-effective basis. To succeed, the Company also must keep pace with and
correctly anticipate technological developments and evolving industry standards
and methodologies.
Both in the desktop HDD market for which the Company's current products are
designed and in any other HDD market segments in which the Company may compete
in the future, advances in magnetic, optical or other technologies, or the
development of entirely new technologies, could result in the creation of
competitive products that have better performance and/or lower prices than the
Company's products. Examples of such new technologies include "giant
magneto-resistive" ("GMR") head technology (which already has been introduced by
IBM and which Western Digital reportedly will use in its products pursuant to an
agreement with IBM) and optically-assisted recording technologies (which
currently are being developed by companies such as TeraStor Corporation and
Seagate). Currently, the Company intends to incorporate GMR head technology into
future products and is evaluating the various approaches to and timing of such a
transition. The Company has decided not to pursue optically-assisted recording
technologies at this time.
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There can be no assurance that the Company's existing markets will not be
eroded by technological developments; that the Company will be successful in
developing, manufacturing and marketing product enhancements or new products
that respond to and anticipate technological change, such as the transition to
GMR head technology, and changing customer requirements; or that its new
products and product enhancements will be introduced or manufactured in volume
on a timely basis and will adequately meet the requirements of the marketplace
and achieve any significant degree of market acceptance. Inability to introduce
or achieve volume production of competitive products on a timely basis has in
the past and could in the future have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."
Unlike some of its competitors, the Company does not manufacture any of the
components used in its HDDs, including key components such as heads, disks and
printed circuit boards ("PCBs"). The Company's product development process
therefore involves incorporating components designed by and purchased from third
party suppliers. As a consequence, the success of the Company's products is in
great part dependent on the Company's ability to gain access to and integrate
components which utilize leading-edge technology. The successful management of
these integration projects depends on the timely availability and quality of key
components, the availability of appropriately skilled personnel, the ability to
integrate different products from a variety of vendors effectively, and the
management of difficult scheduling and delivery problems. There can be no
assurance that the Company will be able to manage successfully the various
complexities encountered in integration projects. The Company's success will
depend in part on its relationships with key component suppliers, and there can
be no assurance that such relationships will develop, that the Company will
identify the most advantageous suppliers with which to establish such
relationships, or that existing or future relationships with component suppliers
will continue for any significant time period. See "-- Dependence on Suppliers
of Components and Sub-Assemblies," "Business -- Product Development/Technology"
and "-- Products."
TRANSITION TO AND DEPENDENCE ON INFORMATION SYSTEMS; YEAR 2000 PROBLEM
The Company is preparing to implement a new enterprise-wide information
system provided by SAP, AG (the "SAP System"), in the third quarter of 1998. The
SAP System is designed to automate more fully the Company's business processes
and will affect most of the Company's functional areas including, without
limitation, finance, procurement, inventory control, collections, order
processing and manufacturing, and its implementation will require certain
upgrades in the Company's existing computer hardware systems. Historically,
there have been substantial delays in implementation of such systems at other
companies. Unlike most companies, which implement new information systems in
stages over time, the Company has chosen to install and activate the SAP System
across most functional areas of the Company simultaneously. The Company believes
it is among the first to undertake such a broad, simultaneous implementation of
the SAP System. This approach may substantially increase the risk of delay or
failure in the SAP System's implementation. Implementation of the SAP System
will be complex, expensive and time intensive and its successful implementation
could be adversely affected by various factors including: (i) any failure to
provide adequate training to employees; (ii) any failure to retain skilled
members of the implementation team or to find suitable replacements for such
personnel; (iii) the scope of the implementation plan being expanded by
unanticipated changes in the Company's business; (iv) any inability to extract
data from the Company's existing information system and convert that data into a
format that can be accepted by the SAP System; (v) any failure to devise and run
appropriate testing procedures that accurately reflect the demands that will be
placed on the SAP System following its implementation; and (vi) any failure to
develop and implement adequate fall-back procedures in the event that
difficulties or delays arise during the initial start-up phase of the SAP
System.
In connection with the implementation of the SAP System, the Company may
experience functional and performance problems, including problems relating to
the SAP System's response time and data integrity. In addition, resolution of
any such problems could entail additional costs. Moreover, as a result of the
Company's simultaneous implementation approach, the Company will not have an
operational backup information system
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in the event of a failure of the SAP System. There can be no assurance that the
Company will be able to implement the SAP System successfully on a timely and
cost effective basis or that the SAP System will not fail or prove to be
unsuitable for the Company's needs. The inability of the Company to implement or
resolve problems with the SAP System in a timely manner could have a material
adverse effect on the Company's business, financial condition and results of
operations. No amounts have been accrued in the Company's Consolidated Financial
Statements included elsewhere in this Prospectus for any probable expenses or
lost revenue that could result from problems in implementing the SAP System.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and/or software used by many companies,
including Maxtor, will need to be upgraded to comply with such "Year 2000"
requirements. Because of the Company's change in its fiscal year end in 1996,
the Company's current information systems will need to be upgraded by January
1999 to avoid Year 2000 problems. While the SAP System is expected to resolve
this potential problem, there can be no assurance that the SAP System can be
implemented successfully and on a timely basis. Moreover, the Company could be
adversely impacted by Year 2000 issues faced by major distributors, suppliers,
customers, vendors and financial service organizations with which the Company
interacts. Any disruption in the Company's operations as a result of Year 2000
noncompliance, whether by the Company or a third party, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "-- Control by and Dependence on HEA," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and "Certain
Transactions."
DEPENDENCE ON AND INTEGRATION OF KEY PERSONNEL; HIRING ADDITIONAL SKILLED
PERSONNEL
The Company's success depends upon the continued contributions of its key
management, engineering and other technical personnel many of whom, and in
particular Michael R. Cannon, the Company's President and Chief Executive
Officer, would be extremely difficult to replace. The Company does not have
employment contracts with any of its key personnel other than Mr. Cannon; Paul
J. Tufano, its Vice President, Finance and Chief Financial Officer; William F.
Roach, its Senior Vice President, Worldwide Sales and Marketing; Phillip C.
Duncan, its Vice President, Human Resources; and K.H. Teh, its Vice President,
Worldwide Manufacturing. Furthermore, the Company does not maintain key person
life insurance on any of its personnel. In addition, the majority of the
Company's senior management and a significant number of its other employees have
been with the Company for less than two years. The Company's inability to retain
its existing personnel and effectively manage the integration of new personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations.
To maintain its current market position and support future growth, the
Company will need to hire, train, integrate and retain significant numbers of
additional highly skilled managerial, engineering, manufacturing, sales,
marketing, support and administrative personnel. Competition worldwide for such
personnel is extremely intense, and there can be no assurance that the Company
will be able to attract and retain such additional personnel. The Company
believes that certain competitors recently have made targeted efforts to recruit
personnel from the Company, and such efforts have resulted in the Company losing
some skilled managers. There can be no assurance that such personnel losses will
not continue or increase in the future. Delays in hiring or the inability to
hire, train, integrate or retain required personnel, particularly engineers,
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, companies in the HDD industry
whose employees accept positions with competitive companies frequently claim
that their competitors have engaged in unfair hiring practices. There can be no
assurance that the Company will not receive such claims in the future as it
seeks to hire qualified personnel or that such claims will not involve the
Company in litigation. The Company could incur substantial costs in defending
itself against any such claims, regardless of their merits. See
"Business -- Employees" and "Management -- Directors and Executive Officers."
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CONTROL BY AND DEPENDENCE ON HEA
Upon completion of the Offerings, HEA will own approximately % ( %
if the Underwriters' over-allotment options are exercised in full) of the shares
of the outstanding Common Stock. Accordingly, HEA will be able to elect a
majority of the Board of Directors of the Company (the "Board"), to cause or
prevent a change of control of the Company, to control major decisions of
corporate policy and to determine the outcome of any major transaction or other
matter submitted to the Company's stockholders or directors, including
borrowings, issuances of Common Stock and other securities of the Company, the
declaration and payment of any dividends on Common Stock, potential mergers or
acquisitions involving the Company, amendments to the Company's Amended and
Restated Certificate of Incorporation (the "Amended and Restated Certificate of
Incorporation") and Bylaws and other corporate governance issues. Stockholders
other than HEA therefore are likely to have little or no influence on decisions
regarding such matters. HEA and the Company have entered into a Stockholder
Agreement under which the Company has granted HEA certain rights to require the
Company to register HEA's shares of Common Stock and the right to nominate
members of the Board so long as ownership by HEA and certain of its affiliates
is between 50% and 10% of the outstanding voting securities of the Company. In
the Stockholder Agreement, HEA has agreed to maintain at least two disinterested
directors on the Board so long as HEA is a majority stockholder, and has agreed
to certain restrictions on HEA's right to solicit proxies, to acquire additional
shares of Common Stock and to compete with the Company, but has the right to
maintain its ownership interest at 30% through 2000.
Conflicts of interest may arise from time to time between the Company and
HEA or its affiliates in a number of areas relating to their past and ongoing
relationships, including potential competitive business activities, corporate
opportunities, tax matters, intellectual property matters, indemnity agreements,
registration rights, sales or distributions by HEA of all or any portion of its
ownership interest in the Company or HEA's ability to control the management and
affairs of the Company. There can be no assurance that HEA and the Company will
be able to resolve any potential conflict or that, if resolved, the Company
would not receive more favorable resolution if it were dealing with an
unaffiliated party. The Company's Amended and Restated Certificate of
Incorporation specifies certain circumstances in which a transaction between the
Company and HEA or an affiliated entity will be deemed fair to the Company and
its stockholders, and prescribes guidelines under which HEA and its affiliates
will be deemed not to have breached any fiduciary duty or duty of loyalty to the
Company, or to have usurped a corporate opportunity available to the Company, if
specified conditions are met.
HEI served as guarantor for Company borrowings under various credit
facilities from August 1995 through June 1998. At March 28, 1998, aggregate
indebtedness guaranteed by HEI was $170.0 million. Due to the economic
conditions in Korea and significant recent devaluation of the Korean won versus
the U.S. dollar, HEI's reported financial condition as of year-end 1997 was not
in compliance with certain financial covenants applicable to HEI as guarantor
under such credit facilities, and such non-compliance constituted a default
under such credit facilities and also (through a cross-default clause) under a
demand credit facility with $30.0 million outstanding principal amount as of
March 28, 1998 that is not guaranteed. This non-compliance by HEI was waived by
the lending banks in June 1998 in exchange for the replacement of Hyundai Heavy
Industries Co., Ltd. ("HHI"), a partial owner of HEA, becoming the guarantor and
an increase in pricing to reflect borrowing rates based on HHI's current credit
rating. This waiver is subject to closing all the related documentation. The
Company has closed the waiver agreements with respect to $160.0 million of the
Bank Debt now guaranteed by HHI. The Company believes that it will be able to
obtain a waiver for the remaining $10.0 million of the bank debt and the
remaining cross-default under the $30.0 million demand facility. As a subsidiary
of HEA, the Company has the benefit of a letter of support from HEI under which
HEI agrees to provide sufficient financial support to ensure that the Company
will continue as a going concern. Following the Offerings, the Company will no
longer have the benefit of the support letter. The Company intends to use a
portion of the proceeds of the Offerings to pay down in full all outstanding
amounts under each such credit facility as well as the $55.0 million owed to
HEA, and thereafter to obtain replacement credit facilities that do not depend
on Hyundai entity guarantees. However, there can be no assurance that the
Company will be able to do so, or, if the Company does not do so, that defaults
will not
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occur in the future under the Company's existing credit agreements as a result
of conditions involving HEI and its affiliates.
HEA could decide to sell or otherwise dispose of all or a portion of its
shares of Common Stock at some future date, and there can be no assurance that
HEI or HEA will maintain any past or future relationships or arrangements with
the Company following any transfer by HEA of a controlling or substantial
interest in the Company or that other holders of Common Stock will be allowed to
participate in such transaction. Sales by HEA of substantial amounts of the
Common Stock in the public market could adversely affect prevailing market
prices for the Common Stock.
Since 1996, the Company has been a member of the HEA U.S. consolidated tax
group for U.S. federal income tax purposes. Certain material tax consequences
result from such affiliation. See "-- Certain Tax Risks."
HEI and IBM are parties to a patent cross license agreement (the "IBM
License Agreement"), under which HEI and its subsidiaries, including the
Company, are licensed with respect to certain IBM patents. HEI is required under
the IBM License Agreement to pay IBM a license fee, payable in installments
through 2007. HEI has entered into a sublicense with the Company (the
"Sublicense Agreement") pursuant to which the Company is obligated to pay IBM a
portion of the license fee otherwise due from HEI under the IBM License
Agreement, payable in annual installments, when such amounts are due from HEI to
IBM under the IBM License Agreement. Under the IBM License Agreement, if Maxtor
ceases to be a majority-owned subsidiary of HEA, the Company can obtain a
royalty-free license under the same terms from IBM upon the request of HEI and
the Company and the fulfillment of certain conditions. Pursuant to the
Sublicense Agreement, HEI has agreed to cooperate to obtain such a license for
the Company once the Company ceases to be a majority-owned subsidiary, and the
Company has agreed to continue to pay IBM the Company's allocated portion of the
license fee following the grant of such a license from IBM. HEI and the Company
have indemnified each other for certain liabilities arising from their acts or
omissions relating to the IBM License Agreement.
As discussed more fully above in "-- Transition to and Dependence on
Information Systems; Year 2000 Problem," the Company is preparing to implement a
new enterprise-wide information system provided by SAP, AG. The Company's rights
to this new information system are governed by a license agreement between
Hyundai Information Technology Co., Ltd. ("HIT"), an affiliate of HEI, and SAP,
which provides that the Company will have the right to use existing releases so
long as the Company remains an affiliate of HIT. The Company currently is
discussing with SAP the terms under which the Company could obtain a direct
license with SAP. In the event the Company is no longer a majority-owned
subsidiary of HEA and is not able to obtain a direct license with SAP, the
Company will not be entitled to receive new releases of SAP's information system
software or expand the system for other functions. As a result, the Company
would not be able to effectively utilize its new information system in the
future, which would have a material adverse effect on the Company's business,
financial condition and results of operations. See "-- Transition to and
Dependence on Information Systems; Year 2000 Problem," "-- Risks Associated with
Leverage," "-- Single Manufacturing Facility; Future Need for Additional
Capacity," "-- Expected Volatility of Stock Price; Absence of Current Trading
Market for the Common Stock," "-- Shares Eligible for Future Sale,"
"Relationship Between the Company and Hyundai," "Business -- Intellectual
Property," "Certain Transactions" and "Shares Eligible for Future Sale."
CERTAIN TAX RISKS
Due to the Company's operating losses, its net operating loss carry forward
and its favorable tax status in Singapore, the Company's tax expense has
represented only a small percentage of the Company's expenses. The Company's
foreign and U.S. tax liability could increase substantially in future periods if
the Company attains profitability.
In December 1997 the Company's Singapore subsidiary, Maxtor Peripherals (S)
Pte. Ltd ("Maxtor Singapore"), was granted pioneer tax status in Singapore, thus
exempting it from paying Singapore income taxes until June 30, 2003, subject to
the satisfaction of certain conditions. Maxtor Singapore is eligible for up to
two additional two-year extensions of this pioneer tax status, subject to the
satisfaction of the certain
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additional conditions. There can be no assurance that Maxtor Singapore will be
able to satisfy or, if satisfied to maintain compliance with, the required
conditions. If Maxtor Singapore is unable to satisfy and maintain compliance
with the required condition and is unable to obtain a waiver of any such
failure, it would lose its pioneer tax status, or would be ineligible for such
extensions, which could have a material adverse effect on the Company's
business, financial condition or results of operations.
Since 1996, the Company has been a member of the HEA U.S. consolidated tax
group for U.S. federal income tax purposes (the "HEA Tax Group"). On December
27, 1997, for federal income tax purposes, the Company had net operating loss
("NOL") carryforwards of approximately $616.7 million and tax credit
carryforwards of approximately $18.8 million which will expire beginning in
fiscal year 1999. Prior to the closing of the Offerings and the resulting
deconsolidation of the Company from the HEA Tax Group, the Company intends to
cause its Singapore subsidiary to pay a dividend which will utilize a
substantial portion of the Company's NOL carryforwards. In addition, a
substantial portion of the NOL carryforwards will be utilized by the HEA Tax
Group for the 1998 tax year. As a result, after the Offerings, there will be a
significant reduction in the NOL carryforward available to the Company for
federal income tax purposes. Utilization and payment for the Company's NOL
carryforwards by the HEA Tax Group is governed by a Tax Allocation Agreement
among the Company, HEA and certain other affiliates of HEA, as amended (the "Tax
Allocation Agreement"). Under the Tax Allocation Agreement, the Company is not
reimbursed for utilization of any portion of the Company's NOL carryforwards or
other tax attributes by other members of the HEA Tax Group.
As a result of the Company's acquisition by HEA, utilization of
approximately $253.0 million of the Company's NOL carryforwards and the
deduction equivalent of approximately $18.3 million of tax credit carryforwards
is limited to approximately $22.4 million per year. If, as is expected,
investors acquire more than 50% of the Company's outstanding Common Stock in the
Offerings, then the amount of the Company's U.S. federal taxable income for any
tax year ending after the date of the Offerings which may be offset by the
Company's NOL carryforwards remaining after deconsolidation will be limited to
an amount equal to the value of the Common Stock immediately before the
ownership change multiplied by the long-term tax exempt rate then in effect
(e.g., 5.15% for ownership changes occurring during June 1998).
During the period that the Company is a member of the HEA Tax Group, the
Company and its subsidiaries have filed or will file tax returns as part of the
HEA Tax Group. After the Offerings, the Company will cease to be a member of the
HEA Tax Group. However, the Company will remain liable for tax deficiencies of
the entire HEA Tax Group which relate to the period during which the Company was
a member of the HEA Tax Group. Although the Company believes that the HEA Tax
Group will satisfy all tax obligations for such periods, there can be no
assurance that all such obligations will be satisfied or that additional
liabilities will not be assessed for such periods. The Company has agreed to
indemnify and reimburse HEA if any member of the HEA Tax Group is required to
pay any tax, interest or penalty to any taxing authority related to any
additional Company separate tax return liability and if there is any additional
consolidated or combined tax return liability resulting from revisions to the
Company's taxable income. HEA has agreed to indemnify and reimburse the Company
if the Company or any of its subsidiaries is required to pay any tax, interest
or penalty to any taxing authority related to any separate tax return of any
member of the HEA Tax Group other than the Company or its subsidiaries, and if
the Company or any of its subsidiaries is required to pay to any taxing
authority any amount in excess of the Company's share of the consolidated or
combined tax return liability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Tax Matters."
RISKS ASSOCIATED WITH LEVERAGE
The Company historically has operated with significant amounts of debt as
compared to its equity. At March 28, 1998, the Company had outstanding $350.5
million in principal amount of indebtedness. In the first quarter of 1998 and
for the calendar years ended December 31, 1997 and 1996, the Company's payments
under long-term debt agreements were $11.3 million, $26.5 million and $13.4
million, respectively (including interest payments of $6.3 million, $26.5
million and $13.4 million, respectively). Following the expected application of
the estimated net proceeds to the Company of the Offerings to repay a portion of
the Company's
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debt and planned repayments of debt after March 28, 1998 as well as prior to the
Offerings, the Company will continue to have at least $95.6 million in principal
amount of indebtedness outstanding, including $5.3 million of short-term
borrowings and current portions of long-term debt. The Company also has an asset
securitization program under which the Company sells its accounts receivable on
a non-recourse basis. At March 28, 1998, $100.0 million of accounts receivable
was securitized under the program. Continuance of the program is subject to
certain conditions, including a condition that all of the long-term public
senior debt securities of Hyundai Heavy Industries ("HHI") not fall below a
specified rating. In addition, the securitization program remains subject to
certain conditions related to obtaining a performance guarantee from HHI of the
obligations of the Company and one of its affiliates under the securitization
program. The Company must satisfy these conditions subsequent by June 14, 1998
and presently believes that it will be able to satisfy these conditions. The
Company currently is exploring alternatives to establish a replacement asset
securitization program and/or credit facilities which will not require any
support from any affiliate of HEA. The Company believes it will be able to
obtain such an asset securitization program and/or credit facility. Failure of
the Company to satisfy these conditions or to obtain alternative financing,
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Following the Offerings, the Company will continue to be subject to the
risks associated with leverage, which include: (i) principal and interest
repayment obligations which require the expenditure of substantial amounts of
cash, the availability of which will be dependent on the Company's future
performance; (ii) the inability to repay principal or interest when due or
violation of loan covenants, which could result in a default on the debt,
acceleration of its principal amount and legal actions against the Company; and
(iii) adverse effects of interest expense on the Company's business, financial
condition and results of operations. See "-- Control By and Dependence on HEA,"
"-- Single Manufacturing Facility; Future Need for Additional Capacity,"
"-- Need for Additional Capital," "Relationship Between the Company and
Hyundai," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Certain Transactions."
SINGLE MANUFACTURING FACILITY; FUTURE NEED FOR ADDITIONAL CAPACITY
The Company's volume manufacturing operations currently are based in a
single facility in Singapore. A fire, flood, earthquake or other disaster or
condition affecting the Company's facility could disable such facility. Any
damage to, or condition interfering with the operation of, the Company's
manufacturing facility could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company anticipates
that it may need additional manufacturing capacity as early as the beginning of
the year 2000. In anticipation of that need, in the summer of 1997, HEI began
construction of the Dalian Facility, a 450,000 square foot manufacturing
facility in Dalian, China for the purpose of making additional manufacturing
capacity available to Maxtor. The Dalian Facility is only partially completed
and construction is continuing at a reduced pace. HEI has expended approximately
$23.0 million on the construction to date. An additional estimated $60.0 million
investment will be required to complete the Dalian Facility to the point where
manufacturing lines can be installed, and an estimated additional $25.0 million
of machinery and equipment will be required to make the facility ready for its
initial phase of operation. The Company and HEI have agreed to discuss the terms
under which the Dalian Facility will be completed and by which the Company would
either buy or lease the Dalian Facility from HEI, and the Company intends to
utilize the Dalian Facility if acceptable terms can be agreed upon. There can be
no assurance that the Company will be able to successfully negotiate any such
agreement with HEI or that the Dalian Facility will be completed by the time
Maxtor requires additional capacity. The terms of any agreement with regard to
the Dalian Facility is subject to the approval of the Affiliated Transactions
Committee of the Board. Moreover, any such agreement would be conditioned on the
transfer of HEI's business license for the Dalian Facility and the transfer of
HEI's tax holiday status and other regulatory concessions in Dalian to the
Company. If the Company is unable to reach agreement with HEI on acceptable
terms or obtain the tax holiday status and other regulatory concessions and the
applicable business license, the Company may need to acquire additional
manufacturing capacity at other sites. In addition to the Dalian Facility, the
Company currently is investigating other manufacturing facilities within Asia.
Although the Company believes that alternative manufacturing facilities will be
available, a failure by the Company to obtain, on a timely basis, a facility or
facilities which allow the
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Company to meet its customers' demands will limit the Company's growth and could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Need for Additional Capital," "-- Single
Manufacturing Facility; Future Need for Additional Capacity," "-- Dependance on
International Operation; Risks from International Sales,"
"Business -- Manufacturing," "Management Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources," and
"Certain Transactions."
The Company is experiencing space constraints at its Longmont, Colorado
facility and is negotiating to obtain a lease on a new facility in the Longmont
area. There can be no assurance that the Company will be able to obtain a lease
for a facility that can accommodate its needs for additional space or that, if
obtained, such lease will have terms at least as favorable as the terms
governing its current lease. See "-- Control By and Dependence on HEA," "-- Need
for Additional Capital," "Dependence on International Operations; Risks of
International Sales," "Relationship Between the Company and Hyundai,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business -- Facilities."
NEED FOR ADDITIONAL CAPITAL
The HDD industry is capital intensive. The Company will require substantial
additional working capital to fund its business. The Company's future capital
requirements will depend on many factors, including the rate of sales growth, if
any, the timing and extent of spending to support facilities upgrades and
product development efforts, the timing and size of business or technology
acquisitions, the timing of introductions of new products and enhancements to
existing products. Any future equity financing will decrease existing
stockholders' percentage equity ownership and may, depending on the price at
which the equity is sold, result in significant economic dilution to such
stockholders. Moreover, in connection with future equity offerings, the Company
may issue preferred stock with rights, preferences or privileges senior to those
of the Common Stock. Upon the closing of the Offerings, the Company intends to
seek a line of credit, which may be used from time-to-time to fund the Company's
capital requirements. The Company has no commitments or arrangements to obtain
any additional funding, including the contemplated line of credit, and there can
be no assurance that any required financing of the Company will be available on
acceptable terms, when needed, if at all. The unavailability of, or delays in
obtaining, any necessary financing could prevent or delay the continued
development and marketing of the Company's products and may require curtailment
of various operations of the Company. See "-- Control by and Dependence on HEA,"
"-- Risks Associated with Leverage," "-- Single Manufacturing Facility; Future
Need for Additional Capacity," "Relationship Between the Company and Hyundai,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Certain Transactions."
CUSTOMER CONCENTRATION
The Company focuses its marketing efforts on and sells its HDDs to a
limited number of PC OEMs, distributors and retailers. During the quarter ended
March 28, 1998, two customers, Dell Computer Corporation ("Dell") and IBM,
accounted for approximately 25% and 18%, respectively, of the Company's revenue,
and the Company's top ten customers accounted for approximately 74% of the
Company's revenue. During the fiscal year ended December 27, 1997, two PC OEM
customers, Compaq Computer Corporation ("Compaq") and Dell accounted for
approximately 21% and 10%, respectively, of the Company's revenue, and the
Company's top ten customers accounted for approximately 60% of the Company's
revenue. During the fiscal year ended December 28, 1996, one customer, SED
International Holdings, Inc. ("SED"), a distributor, accounted for approximately
11% of the Company's revenue and the Company's top ten customers accounted for
approximately 68% of the Company's revenue. During the fiscal year ended March
30, 1996, while no customer accounted for more than 10% of the Company's
revenue, the Company's top ten customers accounted for approximately 51% of the
Company's revenue.
The Company anticipates that a relatively small number of customers will
continue to account for a significant portion of its revenue for the foreseeable
future, and that the proportion of its revenue derived from such customers may
continue to increase in the future. The ability of the Company to maintain
strong relationships with its principal customers, including in particular its
PC OEM customers, is essential to the
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ongoing success and profitability of the Company. Although the Company believes
its relationships with key customers generally are good, in order to maintain
its customer relationships, particularly with PC OEMs, the Company must be among
the first to volume production with competitive products. The concentration of
sales in a relatively small number of major customers represents a business risk
that loss of one or more accounts, or a decrease in the volume of products sold
to such accounts, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Due to the intense competition in the HDD market, customers may choose from
various suppliers and therefore can make substantial demands on their chosen
suppliers. The Company's customers generally are not obligated to purchase any
minimum volume and generally are able to terminate their relationship with the
Company at will. Consequently, major customers have significant leverage over
the Company and may attempt to change the terms, including pricing and delivery
terms, upon which the Company sells its products. Moreover, as the Company's PC
OEM, distributor and retail customers are pressured to reduce prices in response
to competitive factors, the Company may be required to reduce the prices of its
products before it knows how, or if, internal cost reductions can be obtained.
If the Company is forced to change the terms, including pricing, upon which the
Company sells its products or is unable to achieve required cost reductions in
connection with reductions in the prices of its products, the Company's
operating margins could decline and such decline could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "-- Risks of Failed Execution; Changing Customer Business Models,"
"- Fluctuation in Product Demand; Focus on a Single Market," "-- Dependence on
International Operations, Risks from International Sales," "- Expected
Volatility of Stock Price; Absence of Current Trading Market for the Common
Stock," and "Business -- Customers and Sales Channels."
DEPENDENCE ON SUPPLIERS OF COMPONENTS AND SUB-ASSEMBLIES
The Company does not manufacture any of the components used in its HDDs and
is dependent on qualified suppliers for the components that are essential for
manufacturing the Company's products, including heads, head stack assemblies,
media and integrated circuits. A number of the key components used by the
Company in its products are available from only one or a limited number of
outside suppliers. Currently, the Company purchases DSP/controller and
spin/servo integrated circuits only from Texas Instruments, Inc. ("TI") and
purchases channel integrated circuits only from Lucent Technologies, Inc.
("Lucent"). Some of the components required by the Company may periodically be
in short supply, and the Company has, on occasion, experienced temporary delays
or increased costs in obtaining components. As a result, the Company must allow
for significant lead times when procuring certain components. In addition,
cancellation by the Company of orders for components due to cut-backs in
production precipitated by market oversupply, reduced demand, transition to new
products or technologies or otherwise can result in payment by the Company of
significant cancellation charges to suppliers. The Company orders the majority
of its components on a purchase order basis and only has limited long-term
volume purchase agreements with certain existing suppliers. Any inability of the
Company to obtain sufficient quantities of components meeting the Company's
specifications, or to develop in a timely manner alternative sources of
component supply if and as required in the future, could adversely affect the
Company's ability to manufacture its products and deliver them on a timely
basis, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Because the Company does not manufacture any of the components used in its
HDDs, the Company's product development process involves incorporating
components designed by and purchased from third party suppliers. As a
consequence, the success of the Company's products is in great part dependent on
the Company's ability to gain access to and integrate components which utilize
leading-edge technology. The successful management of these integration projects
depends on the timely availability and quality of key components, the
availability of appropriately skilled personnel, the ability to integrate
different products from a variety of vendors effectively, and the management of
difficult scheduling and delivery problems. There can be no assurance that the
Company will be able to manage successfully the various complexities encountered
in integration projects. The Company's success will depend in part on its
relationships with key component suppliers, and there can be no assurance that
such relationships will develop, that the Company will identify
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the most advantageous suppliers with which to establish such relationships, or
that existing or future relationships with component suppliers will continue for
any significant time period. See "-- Rapid Technological Change and Product
Development," "Business -- Product Development/Technology" and
"Business -- Products."
LIMITED PROTECTION OF INTELLECTUAL PROPERTY; RISK OF THIRD PARTY CLAIMS OF
INFRINGEMENT
The Company has patent protection on certain aspects of its technology and
also relies on trade secret, copyright and trademark laws, as well as
contractual provisions to protect its proprietary rights. There can be no
assurance that the Company's protective measures will be adequate to protect the
Company's proprietary rights; that others, including competitors with
substantially greater resources, have not developed or will not independently
develop or otherwise acquire equivalent or superior technology; or that the
Company will not be required to obtain licenses requiring it to pay royalties to
the extent that the Company's products may use the intellectual property of
others, including without limitation, Company products that may also be subject
to patents licensed by the Company. There can be no assurance that any patents
will be issued pursuant to the Company's current or future patent applications,
or that patents issued pursuant to such applications or any patents the Company
owns or has licenses to use will not be invalidated, circumvented or challenged.
Moreover, there can be no assurance that the rights granted under any such
patents will provide competitive advantages to the Company or be adequate to
safeguard and maintain the Company's proprietary rights. Litigation may be
necessary to enforce patents issued or licensed to the Company, to protect trade
secrets or know-how owned by the Company or to determine the enforceability,
scope and validity of the proprietary rights of the Company or others. The
Company could incur substantial costs in seeking enforcement of its issued or
licensed patents against infringement or the unauthorized use of its trade
secrets and proprietary know-how by others or in defending itself against claims
of infringement by others, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the laws of certain countries in which the Company's products are manufactured
and sold, including various countries in Asia, may not protect the Company's
products and intellectual property rights to the same extent as the laws of the
United States, and there can be no assurance that such laws will be enforced in
an effective manner. The failure of the Company to enforce and protect its
intellectual property rights could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Dependence on International Operations; Risks of International Sales."
As a subsidiary of HEA, the Company had the benefit of certain third party
intellectual property rights on terms that may have been more favorable than
would have been available to the Company if it were not a subsidiary of HEA.
There can be no assurance that the Company will be able to obtain similar rights
on terms as favorable as it could be obtained as a subsidiary of HEA.
The HDD industry, like many technology-based industries, is characterized
by frequent claims and litigation involving patent and other intellectual
property rights. The Company, its component suppliers and certain users of the
Company's products have from time to time received, and may in the future
receive, communications from third parties asserting patent infringement against
the Company, its component suppliers or its customers which may relate to
certain of the Company's products. If the Company is notified of such a claim,
it may have to (i) obtain appropriate licenses or cross-licenses or (ii) modify
its existing technology or design non-infringing technology. There can be no
assurance that the Company can obtain adequate licenses or cross-licenses on
favorable terms or that it could modify its existing technology or design
non-infringing technology and, in either case, the failure to do so could have a
material adverse effect on the Company's business, financial condition or
results of operations. Although the Company to date has not been a party to any
material intellectual property litigation, certain of its competitors have been
sued on patents having claims related to HDDs and there can be no assurance that
third parties will not initiate infringement actions against the Company or that
the Company could defend itself against such claims. If there is an adverse
ruling against the Company in an infringement lawsuit, it could result in the
issuance of an injunction against the Company or its products and/or the payment
of monetary damages equal to a reasonable royalty or recovered lost profits or,
in the case of a finding of a willful infringement, treble damages. Accordingly,
such an
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adverse ruling could have a material adverse effect on the Company's business,
financial condition and results of operations.
Similar to certain other providers of HDDs, the Company has received
correspondence from Papst-Motoren GmbH and Papst Licensing ("Papst") claiming
infringement of at least 13 HDD motor patents. The patents relate to motors that
the Company purchases from motor vendors and the use of such motors in HDDs.
While the Company believes that it has meritorious defenses against a lawsuit if
filed, the results of litigation are inherently uncertain and there can be no
assurance that Papst will not assert other infringement claims relating to
current patents, pending patent applications and future patents or patent
applications; will not initiate a lawsuit against the Company; or that the
Company will be able to successfully defend itself against such a lawsuit. A
favorable outcome for Papst in such a lawsuit could result in the issuance of an
injunction against the Company or its products and/or the payment of monetary
damages equal to a reasonable royalty or recovered lost profits or in the case
of a finding of a willful infringement, treble damages and could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Relationship Between the Company and Hyundai,"
"Business -- Intellectual Property," and "-- Legal Proceedings."
DEPENDENCE ON INTERNATIONAL OPERATIONS; RISKS FROM INTERNATIONAL SALES
The Company conducts all of its volume manufacturing and testing operations
and purchases a substantial portion of its key components outside of the U.S. In
addition, the Company derives a significant portion of its revenue from sales of
its products to foreign distributors and retailers. Dependence on revenues from
international sales and managing international operations each involve a number
of inherent risks, including economic slowdown and/or downturn in the computer
industry in such foreign markets, international currency fluctuations, general
strikes or other disruptions in working conditions, political instability, trade
restrictions, changes in tariffs, the difficulties associated with staffing and
managing international operations, generally longer receivables collection
periods, unexpected changes in or impositions of legislative or regulatory
requirements, reduced protection for intellectual property rights in some
countries, potentially adverse taxes, delays resulting from difficulty in
obtaining export licenses for certain technology and other trade barriers.
International sales also will be impacted by the specific economic conditions in
each country. For example, the Company's international contracts are denominated
primarily in U.S. dollars. Significant fluctuations in currency exchange rates
against the U.S. dollar, particularly the recent significant depreciation in the
currencies of Japan, Korea, Taiwan and Singapore relative to the U.S. dollar,
have caused the Company's products to become relatively more expensive to
distributors and retailers in those countries, and thus have caused, and may
continue to cause, deferrals, delays and cancellations of orders. The Company
attempts to minimize the impact of foreign currency exchange rate changes on
certain underlying assets, liabilities and anticipated cash flows for operating
expenses denominated in foreign currencies by entering into short-term, foreign
exchange (primarily forward purchase and sale) contracts. There can be no
assurance that all foreign currency exposures will be adequately covered, or
that the Company's business, financial condition and results of operations will
not be materially and adversely affected by changing foreign exchange rates.
These factors, as well as other unanticipated factors, could have a material
adverse effect on future international sales of the Company's products and
consequently, on the Company's business, financial condition and results of
operations. See "-- Dependence on Suppliers of Components and Sub-Assemblies,"
"-- Limited Protection of Intellectual Property; Risk of Third Party Claims of
Infringement," "Relationship Between the Company and Hyundai,"
"Business -- Manufacturing/Quality" and "-- Materials and Supplies."
STORMEDIA; LEGAL PROCEEDINGS
The Company currently is involved in a dispute with StorMedia Incorporated
("StorMedia"), which arises out of an agreement among the Company, StorMedia and
HEI which became effective on November 17, 1995 (the "StorMedia Agreement").
Pursuant to the StorMedia Agreement, StorMedia agreed to supply disk media to
the Company. StorMedia's disk media did not meet the Company's specifications
and functional requirements as required by the StorMedia Agreement and the
Company ultimately terminated the
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StorMedia Agreement. After a class action securities lawsuit was filed against
StorMedia by certain of its shareholders in September 1996 which alleged, in
part, that StorMedia failed to perform under the StorMedia Agreement, StorMedia
sued HEI, Mong Hun Chung (HEI's chairman), Dr. Chong Sup Park (HEA's President
and the individual and then President of the Company who signed the StorMedia
Agreement on behalf of the Company) and K.S. Yoo (the individual who signed the
StorMedia Agreement on behalf of HEI) (collectively the " Original Defendants")
in the U.S. District Court for the Northern District of California (the "Federal
Suit"). In the Federal Suit, StorMedia alleged that at the time HEI entered into
the StorMedia Agreement, it knew that it would not and could not purchase the
volume of products which it committed to purchase, and that failure to do so
caused damages to StorMedia in excess of $206 million.
In December 1996, the Company filed a complaint against StorMedia and
William Almon (StorMedia's Chairman and Chief Executive Officer) in a Colorado
state court seeking approximately $100 million in damages and alleging, among
other claims, breach of contract, breach of implied warranty of fitness and
fraud under the StorMedia Agreement (the "Colorado Suit"). This proceeding was
stayed pending resolution of the Federal Suit. The Federal Suit was permanently
dismissed early in February 1998. On February 24, 1998, StorMedia filed a new
complaint in Santa Clara County Superior Court for the State of California for
$206 million, alleging fraud and deceit against the Original Defendants and
negligent misrepresentation against HEI and the Company (the "California Suit").
On May 18, 1998, the stay on the Colorado Suit was lifted by the Colorado state
court. The Company's motion to dismiss, or in the alternative, stay the
California Suit, is pending.
The Company believes that it has meritorious defenses against the claims
alleged by StorMedia and intends to defend itself vigorously. However, due to
the nature of the litigation and because the pending lawsuits are in the very
early pre-trial stages, the Company cannot determine the possible loss, if any,
that may ultimately be incurred either in the context of a trial or as a result
of a negotiated settlement. The litigation could result in significant diversion
of time by the Company's technical personnel, as well as substantial
expenditures for future legal fees. After consideration of the nature of the
claims and facts relating to the litigation, including the results of
preliminary discovery, the Company's management believes that the resolution of
this matter will not have a material adverse effect on the Company's business,
financial condition or results of operations. However, the results of these
proceedings, including any potential settlement, are uncertain and there can be
no assurance that they will not have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has been notified of certain other claims, including claims of
patent infringement. While the ultimate outcome of these claims and the claims
described above is not determinable, the Company does not believe that
resolution of these matters will have a material adverse effect on the Company's
business, financial condition or results of operations. No amounts related to
any claims or actions have been reserved in the Company's financial statements.
See "-- Limited Protection of Intellectual Property; Risk of Third Party Claims
of Infringement."
WARRANTY EXPOSURE
Products offered by the Company may contain defects in hardware, firmware
or workmanship that may remain undetected or that may not become apparent until
after commercial shipment. The Company generally provides a standard three year
warranty on its products. This standard warranty contains a limit on damages and
an exclusion of liability for consequential damages and for negligent or
improper use of the product. The Company establishes a reserve, at the time of
product shipment, in an amount equal to its estimated warranty expenses. The
Company had warranty reserves of $22.7 million and $25.1 million as of December
27, 1997 and March 28, 1998, respectively. While the Company believes that its
warranty reserves will be sufficient to cover its warranty expenses, there can
be no assurance that such reserves will be sufficient or that the limitations on
liability contained in the Company's warranty will be enforceable. The Company's
failure to maintain sufficient warranty reserves or the unenforceability of such
liability limitations could have a material adverse effect on the Company's
business, financial condition and results of operations.
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EXPECTED VOLATILITY OF STOCK PRICE; ABSENCE OF CURRENT TRADING MARKET FOR THE
COMMON STOCK
In recent years the stock market in general, and the market for shares of
high technology and HDD companies in particular, have experienced extreme price
fluctuations which have often been unrelated to the operating performance of the
affected companies. The trading price of the Common Stock may be subject to
extreme fluctuations both in response to business-related issues (e.g.,
quarterly fluctuations in operating results, announcements of new products by
the Company or its competitors, and the gain or loss of significant OEM or other
customers) and in response to stock market-related influences (e.g., changes in
analysts' estimates, the presence or absence of short-selling of the Common
Stock and events affecting other companies that the market deems comparable to
the Company). The trading price of the Common Stock also may be affected by
events relating to HEA and HEI, including significant selling of the Common
Stock by HEA. Further, the trading price of the Common Stock may be subject to
extreme fluctuations in response to general economic conditions in the U.S.,
Korea, Southeast Asia and elsewhere, such as interest rates, inflation rates,
exchange rates, unemployment rates, and trade surpluses and deficits. There can
be no assurance that the trading price of the Common Stock will not decline
below its initial offering price to the public. Immediately prior to the
Offerings there was no public market for the Common Stock and there can be no
assurance that following the Offerings an active trading market will develop or
be maintained. The public offering price will be determined by negotiations
among the Company and the Representatives and may not be indicative of prices
that will prevail in the trading market following the Offerings.
In addition, due to the factors described above in "-- Potential
Fluctuation in Quarterly Results; Average Selling Price Erosion," as well as
other unanticipated factors, it is likely that in some future quarter or
quarters the Company's operating results will be below the expectations of
public market analysts or investors. In such event, the trading price of the
Common Stock could be materially and adversely affected. See "-- History of
Operating and Net Losses; Accumulated Deficit," "-- Control by and Dependence on
HEA," "-- Customer Concentration," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Underwriting."
ENVIRONMENTAL MATTERS
Although the Company uses only a limited variety of chemicals in its
manufacturing and research operations, the Company is still subject to a wide
range of environmental protection regulations in the U.S. and Singapore. While
the Company has not experienced any material adverse effect on its operations as
a result of such laws, there can be no assurance that future regulations would
not adversely impact the Company's financial performance. The Company believes
that its activities conform to all present environmental regulations in all
material aspects. In the U.S., environmental regulations often require parties
to fund remedial action regardless of fault. As a consequence, it is often
difficult to estimate the future impact of environmental matters, including
potential liabilities. There can be no assurance that the amount of capital
expenditures and other expenses which might be required to complete remedial
actions and to continue to comply with applicable environmental laws will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
EFFECT OF ANTITAKEOVER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), which prohibits a publicly held
Delaware corporation from engaging in any "business combination" with an
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder, unless (i) prior to such date, the
Board approved either the business combination or the transaction that resulted
in the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced; or (iii)
on or subsequent to such date, the business combination is approved by the board
of directors and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction
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resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior did own) 15% or more of the corporation's voting stock.
In addition, pursuant to the Amended and Restated Certificate of
Incorporation, the Board has authority to issue up to 95.0 million shares of
preferred stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of these shares without any further vote or action by
the stockholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such preferred stock may have other rights, including
economic rights, senior to the Common Stock, and as a result, the issuance of
such preferred stock could have a material adverse effect on the market price of
the Common Stock. The Company has no present plan to issue shares of preferred
stock.
The Amended and Restated Certificate of Incorporation provides that the
Board will be divided into three classes of directors serving staggered
three-year terms. As a result, only one of the three classes of the Board will
be elected each year. The directors are removable only for cause upon the
affirmative vote of the holders of at least a majority of the voting power of
all outstanding shares of voting stock, voting as a single class. The Board has
the exclusive right to set the authorized number of directors and to fill
vacancies on the Board. The Amended and Restated Certificate of Incorporation
requires that any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing. In addition,
special meetings of the stockholders of the Company may be called only by the
Board, the Chairman of the Board, or the Chief Executive Officer. Advance notice
is required for stockholder proposals or director nominations by stockholders.
These provisions may be amended only by the affirmative vote of at least 66 2/3%
of the outstanding voting stock, voting as a single class. In addition, the
Company has entered into a Stockholder Agreement with HEA which grants HEA
certain rights to nominate directors, and restricts HEA's right to solicit
proxies and acquire additional shares of Common Stock.
These provisions could discourage potential acquisition proposals and could
delay or prevent a change in control of the Company. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers at a price above the then current market price of the
Common Stock. Such provisions also may inhibit fluctuations in the market price
of the Common Stock that could result from takeover attempts. See "-- Control by
and Dependence on HEA," "Relationship Between the Company and Hyundai,"
"Description of Capital Stock -- Delaware Anti-Takeover Law and Certain Charter
Provisions."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of shares of Common Stock in the public market after the Offerings
could adversely affect the market price of the Common Stock. Upon completion of
the Offerings, the Company will have approximately shares of
Common Stock outstanding, of which shares ( shares
if the Underwriters' over-allotment options are exercised in full) will be
freely transferable without restriction or registration under the Securities Act
of 1933, as amended (the "Securities Act"), unless such shares are held by
affiliates of the Company, as that term is defined in Rule 144 under the
Securities Act. The Company and its officers, directors and certain stockholders
have agreed that, during the period beginning from the date of this Prospectus
and continuing to and including the date 180 days after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any securities of the Company (other than pursuant to employee stock option
plans existing, or on the conversion or exchange of convertible or exchangeable
securities outstanding, on the date of this Prospectus) which are substantially
similar to the Common Stock or which are convertible into or exchangeable for
securities which are substantially similar to the shares of the Common Stock
without the prior written consent of Smith Barney Inc., except for the Common
Stock offered in connection with the Offerings.
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Smith Barney Inc. may, however, in its sole discretion, at any time without
notice, release all or any portion of the shares of Common Stock subject to such
lock-up agreements. Sales of shares of Common Stock by existing stockholders in
the public market, or the availability of such shares for sale, could adversely
affect the market price of the Common Stock. HEA, which upon the closing of the
Offerings, will own approximately shares of Common Stock (
shares if the Underwriters' over-allotment options are exercised in full), has
certain rights with respect to registration of such shares of Common Stock for
sale to the public. In addition, approximately shares of Common
Stock are issuable upon exercise of outstanding options granted under the
Amended Plan as of the date of this Prospectus. The Company intends to file a
registration statement immediately after the closing of the Offerings to allow
resale of such option shares. See "-- Control by and Dependence on HEA,"
"Management -- Benefit Plans," "Description of Capital Stock -- Registration
Rights" and "Shares Eligible for Future Sale."
DILUTION
Investors participating in the Offerings will incur immediate and
substantial dilution in the net tangible book value of their shares of Common
Stock in the amount of approximately $ per share, at an assumed initial
public offering price of $ per share, after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company. Additional dilution will occur upon the exercise of outstanding stock
options. See "-- Shares Eligible for Future Sale," "Dilution" and "Shares
Eligible for Future Sale."
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THE COMPANY
Maxtor is a leading provider of HDD storage products for desktop PC
systems. The Maxtor DiamondMax product family consists of 3.5-inch form factor
HDDs with storage capacities which range from approximately 2.1 GB to 11.5 GB.
These products have a number of features including high speed interfaces for
greater data throughput, a robust mechanical design for improved reliability, MR
head technology and a DSP-based electronic architecture that, when combined,
provides industry-leading benchmark performance. The DiamondMax 2880, introduced
in February 1998, is Maxtor's fourth generation MR head drive, the fifth drive
utilizing the Company's DSP-based electronic architecture, and the seventh drive
based on the Company's Formula 4 mechanical architecture. The Company's
customers are leading desktop PC OEMs, including Compaq, Dell and IBM;
distributors, such as Ingram; and retailers, such as Best Buy and CompUSA.
The Company was organized in 1982 and completed an initial public offering
of common stock in 1986. In the mid-1980's, the Company was a leading technology
innovator in the HDD industry. As is true today, the HDD industry during the
1980's was characterized by intense competition, rapidly changing technology,
frequent product introductions, short product life cycles and rapid erosion of
ASPs. In an effort to mitigate the risks associated with these factors, the
Company pursued all major product segments in the HDD marketplace utilizing
multiple product families and technology platforms. This costly strategy added
significant complexity to the Company's operations, thereby causing the Company
to delay or miss a number of key product introductions, and ultimately led to
the deterioration of the Company's overall financial condition. In early 1996,
HEA acquired all of the remaining publicly-held shares of the Common Stock in a
tender offer and merger. Shortly thereafter, HEA invested in renewed efforts to
revitalize the Company.
In July 1996, the Company hired Michael R. Cannon, its current Chief
Executive Officer and President, a 20 year veteran of the HDD industry, to lead
the turnaround of Maxtor. Mr. Cannon immediately took a number of steps to
position the Company to become a significant provider of HDDs to leading PC OEMs
by improving product performance, quality, time-to-market entry, time-to-volume
manufacturing, and the Company's overall financial performance. These steps
included: (i) providing a strong management team; (ii) reducing Maxtor's overall
cost structure; (iii) rationalizing the Company's product and technology
roadmap; (iv) restructuring the Company's product development process; and (v)
refocusing the Company's sales and marketing efforts.
As a result of these actions, Maxtor's performance has improved
significantly during a period of severe fluctuations in the overall HDD market.
The Company's cost competitiveness initiatives resulted in the Company
significantly reducing quarterly operating expenses and achieving among the
lowest selling, general and administrative costs as a percentage of revenues in
the industry for the 1997 fiscal year. Maxtor's restructured manufacturing and
product design processes as well as its rationalized product and technology
roadmap enabled the Company to complete, during the fourth quarter of 1997, one
of the fastest transitions in the industry from HDDs utilizing thin-film head
technology to 100% use of MR head technology HDDs, while also achieving among
the lowest selling, general and administrative costs as a percentage of revenues
in the industry for the 1997 fiscal year and the first quarter of 1998. With its
DiamondMax 2160, the Company demonstrated significantly improved time-to-volume
production results, manufacturing 1.4 million units during the first full
quarter of production. In the first quarter of 1998, the Company established
itself as a time-to-market entry leader with a 2.8 GB per disk HDD, the
DiamondMax 2880, which is the Company's fourth generation MR product. These
improvements helped the Company increase its units shipped per quarter from 1.3
million units in the first quarter of 1997 to 3.5 million units in first the
quarter of 1998, which resulted in Maxtor increasing its market share of the
desktop HDD market in terms of quarterly units shipped from 5.6% to 13.4% during
that same period according to IDC. The Company's refocused efforts on leading PC
OEMs, such as Compaq, Dell and IBM resulted in an increase in the Company's
revenues from these PC OEMs from 6.5% of total revenues in the second quarter of
1996 to 51.8% of total revenue in the first quarter of 1998. Cumulatively, these
changes have led to significantly improved financial results. The Company's
revenue grew by 122.5% from $247.0 million to $549.6 million during the first
fiscal quarters of 1997 and 1998, respectively, while improving its gross
margins from (2.9)% to 11.3% during the same period.
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The Company is incorporated in the state of Delaware. The Company's
principal executive offices are located at 510 Cottonwood Drive, Milpitas,
California 95035 and the telephone number at that address is (408) 432-1700.
RELATIONSHIP BETWEEN THE COMPANY AND HYUNDAI
In 1994, HEI and certain of its affiliates purchased 40% of the Company's
outstanding Common Stock for an aggregate cash purchase price of $150.0 million
pursuant to a Stock Purchase Agreement dated September 10, 1993 (the "Stock
Purchase Agreement"). In early 1996, HEA acquired all of the remaining shares of
the publicly-held Common Stock in a tender offer and merger for an aggregate
purchase price of $215.0 million and also acquired all of the Company's Common
Stock held by HEI and certain of its affiliates. In June 1996 HEA exchanged its
Common Stock in the Company for 58,208,955 shares of Series A Preferred Stock of
the Company (the "Series A Preferred Stock"). From time to time HEA also made
advances to the Company for working capital. In December 1997, HEA purchased an
additional 29,850,746 shares of Series A Preferred Stock in exchange for the
cancellation of $200 million owed to HEA by the Company. The Company had
outstanding aggregate principal indebtedness of $55.0 million owing to HEA as of
March 28, 1998. HEA currently owns all of the Company's Series A Preferred
Stock, each share of which is currently entitled to one vote, and 99.9% of the
total capital stock outstanding immediately prior to the Offerings. See
"Principal and Selling Stockholders." Pursuant to the Amended and Restated
Certificate of Incorporation, HEA's shares of Series A Preferred Stock will
convert automatically into 44,029,850 shares of Common Stock upon the closing of
the Offerings, and immediately following the Offerings HEA will own
approximately % of the outstanding Common Stock ( % if the Underwriters'
overallotment options are exercised in full).
HEI served as guarantor for Company borrowings under various credit
facilities from August 1995 through June 1998. At March 28, 1998, aggregate
indebtedness guaranteed by HEI was $170.0 million (the "Bank Debt"). Due to the
economic conditions in Korea and significant recent devaluation of the Korean
won versus the U.S. dollar, HEI's reported financial condition as of year-end
1997 was not in compliance with certain financial covenants applicable to HEI as
guarantor under such credit facilities, and such non-compliance constituted a
default under such credit facilities and also (through a cross-default clause)
under a demand credit facility with $30.0 million outstanding principal amount
as of March 28, 1998 that is not guaranteed. This non-compliance by HEI was
waived by the lending banks in June 1998 in exchange for the replacement of HHI,
a partial owner of HEA, becoming the guarantor and an increase in pricing to
reflect borrowing rates based on HHI's current credit rating. This waiver is
subject to closing all the related documentation. The Company has closed the
waiver agreements with respect to $160.0 million of the Bank Debt now guaranteed
by HHI. The Company believes that it will be able to obtain a waiver for the
remaining $10.0 million of the bank debt and the remaining cross-default under
the $30 million demand facility. As a subsidiary of HEA, the Company has the
benefit of a letter of support from HEI under which HEI agrees to provide
sufficient financial support to ensure that the Company will continue as a going
concern. Following the Offerings, the Company will no longer have the benefit of
the support letter. The Company intends to use a portion of the proceeds of the
Offerings to pay down in full all outstanding amounts under each such credit
facility as well as the $55 million owed to HEA, and thereafter to obtain
replacement credit facilities that do not depend on Hyundai entity guarantees.
In contemplation of the Offerings, HEI, HEA and the Company have entered
into certain agreements described below governing certain relationships between
the parties following the Offerings. Because HEA controls the Company, these
agreements could not result from "arms' length" negotiations. In addition, many
of the agreements relate to matters that inherently arise only between a company
and its parent or affiliated companies, and so are not susceptible of comparison
to similar agreements negotiated at arms' length. These agreements resulted from
negotiations between representatives of management and representatives of HEA,
with the participation of their respective legal counsel and other advisors, and
were intended, when taken together, to reflect reasonable tradeoffs and benefits
for both sides. In negotiating these agreements the parties sought to take into
account, to the extent available, both market-based agreements and similar terms
that were negotiated between HEI and its affiliates and the Company as part of
the Stock Purchase Agreement. There can be no assurance that the Company would
not have received more favorable terms from an unaffiliated
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party in some or all of the agreements, although management believes some of the
agreements may have more favorable terms than those available from unaffiliated
parties.
Conflicts of interest may arise from time to time in the future between the
Company and HEA or its affiliates in a number of areas relating to their past
and ongoing relationships, including potential competitive business activities,
corporate opportunities, tax matters, intellectual property matters, indemnity
agreements, registration rights, sales or distributions by HEA of all or any
portion of its ownership interest in the Company or HEA's attempt to assert
control over the management and affairs of the Company. There can be no
assurance that HEA and the Company will be able to resolve any potential
conflict or that, if resolved, the Company would not receive more favorable
resolution if it were dealing with an unaffiliated party.
The Board has established an Affiliated Transactions Committee which is
comprised entirely of directors who are not employed by HEA, any affiliate
thereof or the Company. The Board has adopted resolutions requiring this
Affiliated Transactions Committee to review any material transactions between
the Company on the one hand, and HEA or its affiliates on the other, following
the Offerings. The Company also has certain provisions in its Amended and
Restated Certificate of Incorporation concerning the conduct of certain affairs
of the Company as they may involve HEA and its affiliates on the one hand and
the Company on the other.
HEA could decide to sell or otherwise dispose of all or a portion of its
holdings of the Company's Common Stock at some future date following the
Offerings, subject to certain agreements between HEA and the Underwriters. There
can be no assurance that any holders of the Common Stock other than HEA would be
allowed to participate in any transaction involving a transfer of a controlling
interest in the Company by HEA, or that any such transaction would not adversely
affect the trading price of the Common Stock or the interests of the holders of
the Common Stock who do not participate in such transaction.
Certain of the agreements and documents summarized below have been filed as
exhibits in the Registration Statement of which this Prospectus forms a part,
and the summaries of such agreements and documents are qualified in their
entirety by reference to the full text of such agreements and other documents.
See "Risk Factors -- Shares Eligible for Future Sale," "Certain Transactions,"
"Management -- Board Committees," "Description of Capital Stock -- Certificate
of Incorporation Provisions Relating to Conflicts of Interest and Corporate
Opportunities" and "Available Information."
PURCHASES FROM AFFILIATE
HEA formed a division in May 1996 to provide a supply of hard disk media to
the Company. This division of HEA was incorporated as MMC Technology, Inc.
("MMC"), formerly known as Max Media Corporation, in December 1997 and is
currently a wholly-owned subsidiary of HEA. During the year ended December 27,
1997 and the three month period ended March 28, 1998, MMC supplied 17.4% and
28.8%, respectively, of media purchased by the Company for an aggregate purchase
price of $15.5 million and $27.6 million, respectively. During 1997, MMC's media
price to the Company was 2% below the best price for media available to the
Company from any of its qualified merchant vendors. For the quarter ended March
28, 1998, the actual price for media supplied by MMC for each family of Maxtor
products was based on a discount from weighted average prices of media purchased
by the Company from qualified merchant vendors for such Maxtor products,
resulting in an aggregate 3.7% discount. The Company is currently in the process
of finalizing a formal agreement with MMC with respect to pricing for the
balance of 1998 and does not anticipate that such agreement will result in a
substantial price discount, if any, from the prices available from the Company's
other qualified merchant vendors. See "Risk Factors -- Control by and Dependence
on Hyundai"; "-- Dependence on Suppliers of Components and Sub-Assemblies,"
"-- Dependence on International Operations; Risks from International Sales,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Materials and Supplies"; and "Certain Transactions."
DALIAN MANUFACTURING FACILITY
The Company anticipates that it may need additional manufacturing capacity
as early as the beginning of the year 2000. In anticipation of that need, in the
summer of 1997, HEI began construction of the Dalian Facility, a 450,000 square
foot manufacturing facility in Dalian, China for the purpose of making
additional
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manufacturing capacity available to Maxtor. The Dalian Facility is only
partially completed and construction is continuing at a reduced pace. HEI has
expended approximately $23.0 million on the construction to date. An additional
estimated $60.0 million investment will be required to complete the Dalian
Facility to the point where manufacturing lines can be installed, and an
estimated additional $25.0 million of machinery and equipment will be required
to make the facility ready for its initial phase of operation. The Company and
HEI have agreed to discuss the terms under which the Dalian Facility will be
completed and by which the Company would either buy or lease the Dalian Facility
from HEI, and the Company intends to utilize the Dalian Facility if acceptable
terms can be agreed upon. There can be no assurance that the Company will be
able to successfully negotiate any such agreement with HEI or that the Dalian
Facility will be completed by the time Maxtor requires additional capacity. The
terms of any agreement with regard to the Dalian Facility is subject to the
approval of the Affiliated Transactions Committee of the Board. Moreover, any
such agreement would be conditioned on the transfer of HEI's business license
for the Dalian Facility and the transfer of HEI's tax holiday status and other
regulatory concessions in Dalian to the Company. If the Company is unable to
reach agreement with HEI on acceptable terms or obtain the tax holiday status
and other concessions and the applicable business license and other regulatory
concessions, the Company may need to acquire additional manufacturing capacity
at other sites. In addition to the Dalian Facility, the Company currently is
investigating other manufacturing facilities within Asia. Although the Company
believes that alternative manufacturing facilities will be available, a failure
by the Company to obtain, on a timely basis, a facility or facilities which
allow the Company to meet its customers' demands will limit the Company's growth
and could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Need for Additional
Capital," "-- Single Manufacturing Facility; Future Need for Additional
Capacity," "-- Dependance on International Operation; Risks from International
Sales," "Business -- Manufacturing," "Management Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," and "Certain Transactions."
MAXTOR RIGHTS UNDER IBM LICENSE AGREEMENT
HEI and IBM are parties to a patent cross license agreement, under which
HEI and its subsidiaries, including the Company, are licensed with respect to
certain IBM patents. HEI is required under the IBM License Agreement to pay IBM
a license fee, payable in installments through 2007. HEI has entered into a
sublicense with the Company pursuant to which the Company is obligated to pay
IBM a portion of the license fee otherwise due from HEI under the IBM License
Agreement, payable in annual installments, when such amounts are due from HEI to
IBM under the IBM License Agreement. Under the IBM License Agreement, if Maxtor
ceases to be a majority-owned subsidiary of HEA, the Company can obtain a
royalty-free license under the same terms from IBM upon the request of HEI and
the Company and the fulfillment of certain conditions. Pursuant to the
Sublicense Agreement, HEI has agreed to cooperate to obtain such a license for
the Company once the Company ceases to be a majority-owned subsidiary, and the
Company has agreed to continue to pay IBM the Company's allocated portion of the
license fee following the grant of such a license from IBM. HEI and the Company
have indemnified each other for certain liabilities arising from their acts or
omissions relating to the IBM License Agreement as described below. See
"-- Certain Intellectual Property Indemnification and Patent Cross License
Between HEI and the Company," "Risk Factors -- Limited Protection of
Intellectual Property; Risk of Third Party Claims of Infringement," "-- Control
by and Dependence on HEA" and "Certain Transactions."
CERTAIN INTELLECTUAL PROPERTY INDEMNIFICATION AND PATENT CROSS LICENSE BETWEEN
HEI AND THE COMPANY
HEI has agreed to indemnify the Company for any losses from third party
claims arising after the Company ceases to be a majority-owned subsidiary of HEI
which would have been covered under patent license agreements between HEI or its
affiliates other than Maxtor and such third party, and which were in existence
at the time the Company was a majority-owned subsidiary of HEA. These
indemnifications survive for three years after Maxtor ceases to be a
majority-owned subsidiary, and the maximum liability for which HEI is liable
under the indemnification provisions is $25 million. In addition, HEI and the
Company have granted each other royalty-free patent licenses covering patents
owned, or licensable without the payment of royalties or other consideration to
third parties by each party through August 31, 2003 relating to certain fields
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of use. The Company and HEI have also agreed to indemnify each other for any
losses or liabilities arising from any action or failure to take action related
to the IBM License Agreement, including any nonpayment of license fees. The
Company's maximum liability under this indemnity agreement is the total amount
of money due to IBM under the Sublicense Agreement, less any payments previously
made to IBM by Maxtor. See "Risk Factors -- Limited Protection of Intellectual
Property; Risk of Third Party Claims of Infringement;" and
"Business -- Intellectual Property."
TAX ALLOCATION AGREEMENT; TAX INDEMNIFICATION
Since 1996, the Company has been a member of the HEA Tax Group for U.S.
federal income tax purposes. While, for financial reporting purposes, the
Company's tax loss for the period during which the Company was a member of the
HEA Tax Group is computed on a separate tax return basis, utilization and
payment for the Company's NOL carryforwards by the HEA Tax Group is governed by
the Tax Allocation Agreement. A substantial portion of the Company's NOL
carryforwards will be utilized by the HEA Tax Group for the 1998 tax year, which
will result in a significant reduction in the NOL carryforwards available to the
Company for federal income tax purposes. Under the Tax Allocation Agreement, the
Company is not reimbursed for utilization of any portion of the Company's NOL
carryforwards or other tax attributes by other members of the HEA Tax Group.
During the period that the Company is a member of the HEA Tax Group, the
Company and its subsidiaries have filed or will file tax returns as part of the
HEA Tax Group. After the Offerings, the Company will cease to be a member of the
HEA Tax Group. However, the Company will remain liable for tax deficiencies of
the entire HEA Tax Group which relate to the period during which the Company was
a member of the HEA Tax Group. Although the Company believes that the HEA Tax
Group has satisfied all tax obligations for such periods, there can be no
assurance that all such obligations have been satisfied or that additional
liabilities will not be assessed for such periods. The Company has agreed to
indemnify and reimburse HEA if any member of the HEA Tax Group is required to
pay any tax, interest or penalty to any taxing authority related to any
additional Company separate tax return liability and if there is any additional
consolidated or combined tax return liability resulting from revisions to the
Company's taxable income. HEA has agreed to indemnify and reimburse the Company
if the Company or any of its subsidiaries is required to pay any tax, interest
or penalty to any taxing authority related to any separate tax return of any
member of the HEA Tax Group other than the Company or its subsidiaries, and if
the Company or any of its subsidiaries is required to pay to any taxing
authority any amount in excess of the Company's share of the consolidated or
combined tax return liability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Tax Matters."
STOCKHOLDER AGREEMENT
On , 1998, HEA, HEI and the Company entered into a Stockholder
Agreement which clarified and established certain rights and obligations of the
Hyundai Affiliates and the Company regarding the Company's capital stock and
related matters. For purposes of the following discussion, "Hyundai Affiliates"
means HEA, HEI, any of their successors, and all corporations, partnerships,
joint ventures, associations and other entities that directly or indirectly
through one or more intermediaries is controlled by HEA or HEI (other than the
Company and its subsidiaries and such other entities controlled by the Company).
The Stockholder Agreement does not bind any other Hyundai entity.
Registration Rights. Pursuant to the Stockholder Agreement, HEA has certain
registration rights regarding shares of Common Stock held by HEA which are
described under "Description of Capital Stock -- Registration Rights."
Rights Regarding Board of Directors. The Stockholder Agreement also
provides that so long as Hyundai Affiliates beneficially own at least a majority
of the Company's outstanding Voting Stock, HEA will maintain at least two
Disinterested Directors on the Company's Board of Directors. "Disinterested
Directors" are those directors not employed by, or serving as paid consultants
for HEA or its affiliates (including the Company).
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"Voting Stock" for purposes of the Stockholder Agreement means capital stock
which votes generally in the election of directors.
At any time after the Hyundai Affiliates beneficially own less than a
majority but at least 30% of the Company's outstanding Voting Stock, HEA has the
right to designate for Board nomination and stockholder election one director in
each class of the Board, provided such designee is reasonably satisfactory to
the Nominating Committee of the Board, and the remaining directors are to be
nominated by the Nominating Committee subject to the approval of a majority of
the Disinterested Directors. HEA has the right to designate for nomination one
director in each of two classes at any time when the Hyundai Affiliates
beneficially own less than 30% but at least 20% of the Company's outstanding
Voting Stock, and one director if the Hyundai Affiliates beneficially own less
than 20% but at least 10% of the Company's outstanding Voting Stock, provided
that each such designee must be reasonably satisfactory to the Nominating
Committee. If a vacancy occurs with respect to a director which HEA had the
right to designate initially, and HEA has the right at such time to designate a
director for nomination in such director's class, HEA is entitled to designate a
director to fill the vacancy. If the Company complies with its obligation to
nominate for election those persons designated by HEA in accordance with the
Stockholder Agreement, the Hyundai Affiliates are required to vote their shares
of Common Stock in favor of all directors nominated in accordance with the
Stockholder Agreement. HEA's right to designate directors for nomination
terminates when the Hyundai Affiliates beneficially own less than 10% of the
outstanding Voting Stock. See "Management -- Board Committees," "Principal and
Selling Stockholders."
Prohibition on Certain Proxy Solicitations. From such time after the
closing of the Offerings as HEA beneficially owns less than a majority of the
Company's outstanding Voting Stock, the Hyundai Affiliates are not permitted to
make any solicitation of proxies either with regard to the election of directors
or other proposals, except in response to a solicitation of proxies by a person
other than Company management in an election contest or otherwise. This
prohibition on proxy solicitation terminates when the Hyundai Affiliates
beneficially own less than 20% of the outstanding Voting Stock.
Standstill and Right to Maintain Ownership. From such time as HEA
beneficially owns less than a majority of the Company's outstanding Voting
Stock, Hyundai Affiliates are not permitted to acquire additional shares of the
Company's Voting Stock except (i) in the event a third party makes a tender
offer or exchange offer for at least 20% of the Company's Voting Stock that has
not been approved by a majority of the Company's Disinterested Directors, unless
the acquisition of Common Stock by such Hyundai Affiliate is approved by a
majority of the Disinterested Directors or (ii) through December 31, 2000, in
the event as a result of an issuance of Common Stock or other equity securities
by the Company, Hyundai Affiliates will own in the aggregate less than 30% of
the outstanding Voting Stock, plus one share (the "Minimum Ownership") following
such issuance, in which case HEA is permitted to purchase shares of Common Stock
in the open market, subject to the Company's trading window policies, only to
the extent necessary to maintain the Minimum Ownership, and unless such
purchases are made or HEA otherwise directs, the Company will automatically sell
HEA the number of shares of Common Stock necessary to allow Hyundai Affiliates
in the aggregate to maintain the Minimum Ownership, at fair market value as
determined under the Stockholder Agreement. The prohibition on Hyundai
Affiliates' acquisition of the Company's Voting Stock terminates on the earlier
of August 31, 2001 and such time as the Hyundai Affiliates beneficially own less
than 20% of the outstanding Voting Stock.
Agreement Not to Compete. The Hyundai Affiliates have also agreed for a
period of five (5) years from the closing of the Offerings not to compete with
the Company by means of the ownership, management, operation, or control of any
business engaged primarily in the design, development, manufacture, marketing or
sale of HDDs, provided that Hyundai Affiliates are permitted to make investments
in publicly traded corporations, regardless of the business such corporations
are engaged in, provided the aggregate ownership by Hyundai Affiliates does not
exceed 3% of the issued and outstanding capital stock of any such publicly
traded corporation.
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CERTIFICATE OF INCORPORATION PROVISIONS
In order to address certain potential conflicts of interest between HEA and
the Company, the Company's Amended and Restated Certificate of Incorporation
contains provisions concerning the conduct of certain affairs of the Company as
they may involve HEA and its affiliates (other than the Company) and their
respective officers and directors, and the powers, rights, duties and
liabilities of the Company and its officers, directors, stockholders in
connection therewith. In general, these provisions recognize that the Company
and HEA and their respective affiliates may engage in the same or similar
business activities and lines of business and may have an interest in the same
areas of corporate opportunities and that the Company and HEA and their
respective affiliates will continue to have contractual and business relations
with each other (including service of officers and directors of HEA as directors
of the Company). See "Management -- Directors and Executive Officers." These
provisions are described below in the section entitled "Description of Capital
Stock -- Certificate of Incorporation Provisions Relating to Conflicts of
Interest and Corporate Opportunities."
The Amended and Restated Certificate of Incorporation provides that any
person purchasing or otherwise acquiring any interest in any shares of capital
stock of the Company shall be deemed to have notice of and to have consented to
these provisions.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares
of Common Stock offered by the Company hereby are estimated to be approximately
$ (approximately $ if the Underwriters' over-allotment options
are exercised in full), assuming an initial public offering price of $ per
share of Common Stock and after deducting the estimated underwriting discounts
and estimated offering expenses payable by the Company. The Company will not
receive any proceeds from the sale of the shares of the Common Stock offered by
the Selling Stockholder.
Approximately $255.5 million of the net proceeds to the Company from the
offering will be used to repay certain outstanding indebtedness, including
approximately $200.5 million of credit facilities due to various banks and
approximately $55.0 million due to HEA. One of the credit facilities is payable
upon demand and bears interest at variable rates ranging from 6.2% to 7.9%. The
other credit facilities mature in August 1998, August 1998, and August 1999,
respectively, and bear interest annually at variable rates ranging from 6.2% to
7.9%. The intercompany loan due to HEA is due in April 1999 and bears interest
at 10.3%.
The remaining $ million of such net proceeds ($ million
if the Underwriters' over-allotment options are exercised in full) will be used
for capital expenditures, working capital and general corporate purposes.
Pending such uses, the net proceeds to the Company of the Offerings will be
invested in investment grade, interest-bearing securities. See "Risk
Factors -- Risks Associated with Leverage," "-- Need for Additional Capital."
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. The Company
does not anticipate paying cash dividends on its capital stock, including the
Common Stock being offered hereby, in the near future.
32
<PAGE> 34
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 28, 1998, (i) on an actual basis, (ii) on a pro forma basis as of such
date to reflect the conversion upon the closing of the Offerings of all
outstanding shares of preferred stock into 44,029,850 shares of the Common Stock
and (iii) on a pro forma basis as adjusted to reflect the sale of the Common
Stock offered hereby at an assumed initial public offering price of $ per
share and the receipt and application of the proceeds therefrom, after deducting
the estimated underwriting discount and offering expenses payable by the
Company. This information should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 28, 1998
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings:
Short-term borrowings, including current portion of
long-term debt......................................... $ 76,159 $ 76,159 $
Short-term borrowings due to affiliate.................... 55,000 55,000
--------- --------- -----
Total short-term borrowings............................... 131,159 131,159
--------- --------- -----
Long-term debt.............................................. 219,320 219,320
Stockholders' equity (deficit):
Series A Preferred Stock, $0.01 par value, 95,000,000
shares authorized; 88,059,701 shares issued and
outstanding, actual; none issued and outstanding, pro
forma and as adjusted; aggregate liquidation value
$590,000,000 actual, and none pro forma and as
adjusted............................................... 880 --
Common Stock, $0.01 par value, 250,000,000 shares
authorized; 7,563 shares issued and outstanding,
actual; 44,037,413 shares issued and outstanding, pro
forma; shares issued and outstanding, as
adjusted............................................... -- 440
Additional paid-in capital.................................. 537,090 537,530
Unrealized gain on investments in equity securities......... 25,386 25,386
Accumulated deficit......................................... (783,272) (783,272)
--------- --------- -----
Total stockholders' equity (deficit)................... (219,916) (219,916)
--------- --------- -----
Total capitalization................................. $ (596) $ (596) $
========= ========= =====
</TABLE>
33
<PAGE> 35
DILUTION
On a pro forma basis after giving effect to the conversion of all
outstanding shares of Preferred Stock into shares of the Common Stock in
connection with the Offerings, net tangible book value (deficit) of the Company
as of March 28, 1998 was approximately ($219.9 million) or ($4.99) per share of
the Common Stock. "Pro forma net tangible book value" per share represents the
amount of total tangible assets (total assets excluding goodwill) of the Company
reduced by the amount of its total pro forma liabilities and divided by the
total number of shares of the Common Stock outstanding (reflecting the
conversion of all outstanding shares of Preferred Stock into shares of the
Common Stock upon the closing of the Offerings). Without taking into account any
other change in such pro forma net tangible book value after March 28, 1998,
other than to give effect to the sale by the Company of shares of
the Common Stock offered hereby at an assumed initial public offering price of
$ per share and receipt of the estimated net proceeds therefrom, the pro
forma net tangible book value of the Company as of March 28, 1998 would have
been approximately $ or $ per share. This represents an immediate
increase in such net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors. If
the initial public offering price is higher or lower, the dilution to new
investors will be, respectively, greater or less. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
--------
Pro forma net tangible book value per share as of March
28, 1998, before the Offerings....................... $
--------
Increase per share attributable to new investors.......
--------
Pro forma net tangible book value per share after the
Offerings.................................................
--------
Dilution per share to new investors......................... $
========
</TABLE>
The following table summarizes, as of March 28, 1998, on a pro forma basis
to reflect the adjustments described above, the differences between the existing
stockholders and the new investors with respect to the number of shares of the
Common Stock purchased from the Company, the total consideration paid to the
Company and the average price per share paid by the existing stockholders and by
new public stockholders purchasing shares in the Offerings (at an assumed
initial public offering price of $ per share and before deducting the
estimated underwriting discounts and offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 44,037,413 % $537,970,000 % $12.22
New investors........................
---------- ----- ------------ ------
Total........................... 100.0% 100.0%
========== ===== ============ ======
</TABLE>
The above computations assume that (i) the Underwriters' over-allotment
options are not exercised and (ii) no options have been or are exercised after
, 1998. As of , 1998, there were outstanding options to
purchase an aggregate of shares of the Common Stock at a weighted
average exercise price of $ per share. If all such options had been
exercised on , 1998, the net tangible book value of the Company on
such date would have been $ or $ per share, the increase in net
tangible book value attributable to new investors would have been $ per
share and the dilution in net tangible book value to new investors would have
been $ per share. See "Risk Factors -- Shares Eligible for Future Sale,"
"Management -- Benefit Plans," "Description of Capital Stock" and Notes 7 and 10
of Notes to Consolidated Financial Statements.
34
<PAGE> 36
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus. The table below sets
forth selected consolidated financial data for the Company for, and as of the
end of, each of the fiscal periods in the five year period ended December 27,
1997 and the quarter ended March 28, 1998. The selected consolidated financial
data for the fiscal years ended March 26, 1994, March 25, 1995, and March 30,
1996, have been derived from the consolidated financial statements of the
Company audited by Ernst & Young LLP. The selected consolidated financial data
for the nine month period ended December 28, 1996 and the fiscal year ended
December 27, 1997 have been derived from the consolidated financial statements
of the Company audited by Coopers & Lybrand L.L.P., included herein. The
selected consolidated financial data for the three-month period ended March 28,
1998 is derived from unaudited financial statements of the Company included
elsewhere in this Prospectus. In the opinion of management, such unaudited
financial statements have been prepared on the same basis as the audited
financial statements referred to above and include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
Company's financial position and results of operations for the indicated period.
Operating results for the three months ended March 28, 1998 are not necessarily
indicative of the results that may be expected for the full year.
<TABLE>
<CAPTION>
THREE
FISCAL YEAR FISCAL YEAR FISCAL YEAR NINE MONTHS FISCAL YEAR MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 26, MARCH 25, MARCH 30, DECEMBER 28, DECEMBER 27, MARCH 28,
1994 1995 1996 1996(1) 1997 1998
----------- ----------- ----------- ------------ ------------ -----------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue.................................... $1,152.6 $ 906.8 $1,269.0 $ 798.9 $1,424.3 $ 549.6
Cost of revenue............................ 1,205.0 850.7 1,196.3 888.9 1,352.9 487.3
-------- ------- -------- ------- -------- -------
Gross profit (loss)........................ (52.4) 56.1 72.7 (90.0) 71.4 62.3
Operating expenses:
Research and development................. 97.2 60.7 94.7 87.8 106.2 33.4
Selling, general and administrative...... 78.9 81.6 82.8 60.7 62.6 15.9
Stock compensation expense............... -- -- -- -- -- 14.7(3)
Other.................................... 19.5 (10.2) 4.5 -- -- --
-------- ------- -------- ------- -------- -------
Total operating expenses............... 195.6 132.1 182.0 148.5 168.8 64.0(3)
-------- ------- -------- ------- -------- -------
Loss from operations....................... (248.0) (76.0) (109.3) (238.5) (97.4) (1.7)
Interest expense........................... (10.0) (8.4) (11.8) (18.1) (36.5) (8.8)
Interest and other income.................. 2.3 4.2 1.1 1.0 25.0(4) 0.3
Provision for income taxes................. 1.9 2.0 2.8 0.8 1.0 0.1
-------- ------- -------- ------- -------- -------
Net loss................................... $ (257.6) $ (82.2) $ (122.8) $(256.4) $ (109.9) $ (10.3)(3)
Net loss per share -- basic and
diluted(2)............................... $ (16.00) $ (3.25) $ (5.94) $ -- $ -- $ --
Shares used in per share calculation (in
thousands)............................... 16,102 25,292 20,677 -- 2 8
Pro forma net loss per share(5)............ -- -- -- $(17.62) $ (3.62) $ (0.23)
Shares used in pro forma share
calculation.............................. -- -- -- 14,552 30,350 44,037
BALANCE SHEET DATA:
Total assets............................... $ 492.4 $ 381.8 $ 442.5 $ 314.5 $ 555.5 $ 634.6
Total current liabilities.................. 265.7 236.0 413.1 412.9 552.2 635.2
Long-term debt and capital lease
obligations due after one year........... 107.4 102.0 100.2 229.1 224.3 219.3
Total stockholders' equity (deficit)... 119.2 43.9 (71.1) (327.5) (221.0) (219.9)
</TABLE>
- ---------------
(1) The Company changed its fiscal year during the period ended December 28,
1996 to conform to its parent, HEA.
(2) Net loss per share information for the fiscal periods ended December 28,
1996 and December 27, 1997 and the three months ended March 28, 1998 have
not been presented since such information is not meaningful due to the
limited number of shares of Common Stock outstanding.
(3) Total operating expenses, loss from operations and net loss for the three
months ended March 28, 1998 reflect a $14.7 million compensation charge
related to the variable accounting features of the Option Plan. Without such
charge, the Company would have had total operating expenses of $49.3
million, income from operations of $13.0 million and net income of $4.4
million. The Option Plan has been amended and restated to remove the
variable features and provide for fixed award options. See Note 10 of Notes
to Consolidated Financial Statements.
(4) Includes recovery of a $20.0 million fully-reserved note from IMS.
(5) Pro forma net loss per share information assumes a conversion of all
outstanding preferred stock.
35
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements within the meaning of
the U.S. federal securities laws that involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in this
Prospectus as a result of certain factors including, but not limited to, those
set forth in the following Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Prospectus. In
addition to the other information in this Prospectus, prospective investors
should consider carefully the following Management's Discussion and Analysis of
Financial Condition and Results of Operations and the information set forth
under the heading "Risk Factors" in evaluating the Company and its business
before purchasing Common Stock in the Offerings.
OVERVIEW
Maxtor is a leading provider of HDD storage products for desktop PC
systems. The Maxtor DiamondMax product family consists of 3.5-inch form factor
HDDs with storage capacities which range from approximately 2.1 GB to 11.5 GB.
These products have a number of features including high speed interfaces for
greater data throughput, a robust mechanical design for improved reliability, MR
head technology and a DSP-based electronic architecture that, when combined,
provides industry-leading benchmark performance. The DiamondMax 2880, introduced
in February 1998, is Maxtor's fourth generation MR head drive, the fifth drive
utilizing the Company's DSP-based electronic architecture, and the seventh drive
based on the Company's Formula 4 mechanical architecture. The Company's
customers are leading desktop PC OEMs, including Compaq, Dell and IBM;
distributors, such as Ingram; and retailers, such as Best Buy and CompUSA.
In 1994, HEI and certain of its affiliates purchased 40% of the Company's
outstanding Common Stock for an aggregate cash purchase price of $150.0 million
pursuant to the Stock Purchase Agreement. In early 1996, HEA acquired all of the
remaining shares of the publicly-held Common Stock in a tender offer and merger
for an aggregate purchase price of $215.0 million and also acquired all of the
Company's Common Stock held by HEI and certain of its affiliates. In June 1996
HEA exchanged its Common Stock in the Company for 58,208,955 shares of the
Series A Preferred Stock. From time to time HEA also made advances to the
Company for working capital. In December 1997, HEA purchased an additional
29,850,746 shares of Series A Preferred Stock in exchange for the cancellation
of $200.0 million owed to HEA by the Company. The Company had outstanding
aggregate principal indebtedness of $55.0 million owing to HEA as of March 28,
1998. HEA currently owns all of the Company's Series A Preferred Stock, each
share of which is currently entitled to one vote, and 99.98% of the total
capital stock outstanding immediately prior to the Offerings. Pursuant to the
Amended and Restated Certificate of Incorporation, HEA's shares of Series A
Preferred Stock will convert automatically into 44,029,850 shares of Common
Stock upon the closing of the Offerings, and immediately following the Offerings
HEA will own approximately % of the outstanding Common Stock ( % if the
Underwriters' overallotment options are exercised in full). See "Risk Factors --
Control by and Dependence on HEA," and "Relationship Between the Company and
Hyundai;" "-- Potential Fluctuations in Quarterly Results; Average Selling Price
Erosion; Management of Growth," "-- Risks of Failed Execution; Changing Customer
Business Models," "-- Highly Competitive Industry," "Expected Volatility of
Stock Price; Absence of Current Trading Market for the Common Stock,"
"Relationship Between the Company and HEA" and "Principal and Selling
Shareholders."
The desktop HDD industry is intensely competitive and characterized by
dramatic shifts in market share among a limited number of HDD vendors and
significant erosion of ASPs for new products. PC OEMs, which compete in a market
that is consolidating market share among the top ten PC OEMs accounted for
greater than 50% of the PC units shipped during 1997 and the first quarter of
1998. A majority of the Company's HDDs are sold to PC OEMs. The process of
qualifying the Company's products with these PC OEM customers can be lengthy,
complex and difficult. These PC OEMs use the quality, storage capacity and
performance characteristics of HDDs to select their HDD providers. PC OEMs
typically seek to qualify three or four providers for a given HDD product
generation. To qualify consistently with PC OEMs and thus succeed in the desktop
HDD industry, an HDD provider must consistently execute on its product
development
36
<PAGE> 38
and manufacturing process goals in order to be among the first-to-market entry
and first-to-volume production at leading storage capacity per disk with
competitive prices. Once a desktop PC OEM has chosen its qualified HDD vendors
for a given PC product, it generally will purchase HDDs from those vendors for
the life of that product. If a qualification opportunity is missed, the Company
may not have another opportunity to do business with that PC OEM until the next
generation of the Company's products is introduced. The effect of missing a
product qualification opportunity is magnified by the limited number of high
volume PC OEMs. Failure to reach the market on time or to deliver timely volume
production usually results in significantly decreased gross margins due to
rapidly declining ASPs and dramatic losses in market share. Failure to obtain
significant PC OEM customer qualifications for new or existing products in a
timely manner would have a material adverse effect on the Company's business,
financial condition and results of operations. Successful fulfillment of the
performance parameters, however, is only part of the competitive equation. As
desktop PC OEMs seek to develop successful business models, they are requiring
that their HDD vendors maintain high levels of quality to enable low cost of
ownership and adapt their inventory management models to be compatible with the
changing business models in the PC industry.
In July 1996, the Company hired Michael R. Cannon, its current Chief
Executive Officer and President, and a 20 year veteran of the HDD industry, to
lead the turnaround of Maxtor. Mr. Cannon immediately took a number of steps to
position the Company to become a significant provider of HDDs to leading PC OEMs
by improving product performance and quality, time-to-market entry,
time-to-volume manufacturing, and the Company's overall financial performance.
These steps included: (i) providing a strong management team; (ii) reducing
Maxtor's overall cost structure; (iii) rationalizing the Company's product and
technology roadmap; (iv) restructuring the Company's product development
process; and (v) refocusing the Company's sales and marketing efforts.
As a result of these steps, during the five quarter period ended March 28,
1998, the Company's quarterly revenue grew by 122.5%, increasing from $247.0
million in the first quarter of 1997 to $549.6 million in the first quarter of
1998. For the same periods, gross margins increased from (2.9)% to 11.3%. The
Company's gains in profitability have been offset partially by the constant,
severe erosion in ASPs in the HDD industry. As indicated above, throughout the
HDD industry, the price points at which new products are introduced rapidly
erode as competitors begin to provide competitive products, costs decline, and
new technologies are introduced. The prices of the Company's products also are
influenced by the cyclical demand for desktop PCs. Consequently, in order to
remain competitive, the Company must be consistently among the first to
introduce new products and must attain volume production of those products in a
timely manner. There can be no assurance that the Company will be able to
introduce products in a timely manner or attain timely production of commercial
volumes. Failure of the Company to consistently achieve timely volume production
will result in lower ASPs which will have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Potential Fluctuations in Quarterly Results; Average Selling Price
Erosion" "-- Fluctuations in Product Demand; Focus on Single Market" and
"-- Rapid Technological Change and Product Development."
During the second half of 1996, the Company introduced a number of measures
to substantially reduce its operating expenses. These measures included the
consolidation of its volume manufacturing operations to a single facility in
Singapore and reductions in the Company's workforce. Additionally, during June
1996, the Company further reduced its expenses by selling its majority ownership
interest in IMS, a company which manufactures PCBs. During the second half of
1996, the Company also reduced its research and development ("R&D") expense by
rationalizing the Company's product and technology roadmap to focus on desktop
HDDs utilizing a single core technology platform and MR head technology. While
substantial expense reductions occurred in 1996, the Company focused on cost
containment in 1997 and the first quarter of 1998. During each of the five
quarters ended March 28, 1998 and despite continuous revenue growth, operating
expenses on an absolute dollar basis remained at a relatively constant level
and, as a percentage of total revenue, operating expenses decreased from 16.8%
in the first quarter of 1997 to 11.6% in the first quarter of 1998, the later of
which included 2.7% arising from a stock compensation expense related to certain
variable features of the Option Plan. The Option Plan was subsequently amended
and restated to remove the variable features, and fixed awards were issued in
replacement. The Company anticipates that in future periods,
37
<PAGE> 39
operating expenses will continue to grow in absolute dollars as a consequence of
supporting efforts to diversify the Company's product portfolio, expenses
related to expected increased sales activity and expenses related to increased
capacity. See "Results of Operations -- Quarterly Results of
Operations -- Operating Expenses -- Stock Compensation Expenses," "Risk
Factors -- Dependence on Suppliers of Components and Sub-Assemblies" and
"-- Single Manufacturing Facility; Future Need for Additional Capacity."
Many of the Company's customers use flexible supply chain management
models. These models, such as the just-in-time inventory model, require
component suppliers, including HDD manufacturers, to be able to supply
components on an as needed basis. To improve overall customer satisfaction and
to respond to this trend, component suppliers, such as the Company, have been
required to adopt supply models whereby they establish warehouses containing
adequate component supplies near their customers' manufacturing sites. These
supply models can result in higher working capital requirements and costs in
order to maintain higher levels of inventory and also may result in a longer
operating cycle. The Company has implemented a just-in-time supply model with
certain of its customers including a significant number of its principal PC OEM
customers. See "Risk Factors -- Risks of Failed Execution; Changing Customer
Business Models."
Intellectual Property
As a subsidiary of HEA, the Company had the benefit of certain third-party
intellectual property rights on terms that may have been on more favorable than
otherwise available to the Company if it were not a subsidiary. In connection
with the Offerings, the Company has agreed to pay an allocated share of the
license fees associated with such third party rights in annual installments
ranging from $1.0 million to $2.3 million through 2007. There can be no
assurance that the Company will be able to obtain similar rights in the future
on similar terms.
Revenue Recognition
The Company generally recognizes revenue upon shipment to its customer.
Sales to certain distributors and retailers are governed by 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 records reserves
for the estimated cost to repair or replace products under warranty at the time
of sale. The Company warrants its products against defects in parts and labor
for a period of three years from the date of shipment with an additional three
months allowed for distributors to account for "shelf life."
Tax Matters
Since 1996, the Company has been a member of the HEA Tax Group for U.S.
federal income tax purposes. On December 27, 1997, for federal income tax
purposes, the Company had NOL carryforwards of approximately $616.7 million and
tax credit carryforwards of approximately $18.8 million which will expire
beginning in fiscal year 1999. Of the approximately $616.7 million federal
income tax NOL carryforwards, approximately $253.0 million were generated before
the Company became part of the HEA Tax Group (the "Pre-Affiliation NOL") and
approximately $364.0 million were generated after the Company became part of the
HEA Tax Group (the "Post-Affiliation NOL").
Due to the Company's NOLs, the Company has not incurred any significant
federal or state income taxes for any of the Company's recent fiscal periods.
Prior to the closing of the Offerings and the resulting deconsolidation of the
Company from the HEA Tax Group, the Company intends to cause its Singapore
subsidiary to pay a dividend which will utilize a substantial portion of the
Company's NOL carryforwards. In addition, a substantial portion of the NOL
carryforwards will be utilized by the HEA Tax Group for the 1998 tax year. As a
result, after the Offerings, there will be a significant reduction in the NOL
carryforwards available to the Company for federal income tax purposes.
As a result of the Company's acquisition by HEA, utilization of
approximately $253.0 million of Pre-Affiliation NOL carryforwards and the
deduction equivalent of approximately $18.8 million of tax credit carryforwards
is limited to approximately $22.4 million per year. If, as is expected,
investors acquire more than 50% of the Company's outstanding stock in the
Offerings, then the amount of the Company's U.S. federal
38
<PAGE> 40
taxable income for any tax year ending after the date of the Offerings which may
be offset by the Company's NOL carryforwards remaining after deconsolidation
will be limited to an amount equal to the value of the Company's stock
immediately before the ownership change multiplied by the long-term tax exempt
rate then in effect (e.g., 5.15% for ownership changes occurring during June
1998).
While, for financial reporting purposes, the Company's tax loss for the
period during which the Company was a member of the HEA Tax Group is computed on
a separate tax return basis, utilization and payment for the Company's NOL
carryforwards by the HEA Tax Group is governed by the Tax Allocation Agreement.
Under the Tax Allocation Agreement, the Company is not reimbursed for
utilization of any portion of the Company's NOL carryforwards or other tax
attributes by other members of the HEA Tax Group.
During the period that the Company was a member of the HEA Tax Group, the
Company and its subsidiaries filed separate tax returns and consolidated or
combined tax returns as part of the HEA Tax Group. After the Offerings, the
Company will cease to be a member of the HEA Tax Group. However, the Company
will remain liable for tax deficiencies of the entire HEA Tax Group which relate
to the period during which the Company was a member of the HEA Tax Group.
Although the Company believes that the HEA Tax Group has satisfied all tax
obligations for such periods, there can be no assurance that all such
obligations have been satisfied or that additional liabilities will not be
assessed for such periods. The Company has agreed to indemnify and reimburse HEA
if any member of the HEA Tax Group is required to pay any tax, interest or
penalty to any taxing authority related to any additional Company separate tax
return liability and if there is any additional consolidated or combined tax
return liability resulting from revisions to the Company's taxable income. HEA
has agreed to indemnify and reimburse the Company if the Company or any of its
subsidiaries is required to pay any tax, interest or penalty to any taxing
authority related to any separate tax return of any member of the HEA Tax Group
other than the Company or its subsidiaries, and if the Company or any of its
subsidiaries is required to pay to any taxing authority any amount in excess of
the Company's share of the consolidated or combined tax return liability.
Change in Fiscal Year.
During 1996, the Company changed its fiscal year end to be consistent with
the fiscal year end of HEA. The fiscal year end changed from the last Saturday
of March, the date used in the Company's preceding filings of its Form 10-K with
the Commission, to the last Saturday of December conforming to HEA's 52/53-week
year methodology. The fiscal year ended on December 27, 1997, which is audited,
comprises twelve months or 52 weeks. For discussion and analysis purposes it is
compared to the unaudited twelve months ended December 28, 1996, also comprising
52 weeks. The audited nine months ended December 28, 1996, comprising 39 weeks,
are compared to the unaudited nine months ended December 30, 1995, comprising 40
weeks.
39
<PAGE> 41
RESULTS OF OPERATIONS
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED).
The following table sets forth certain quarterly financial information for
each of the five quarters in the fifteen month period ended March 28, 1998. This
information is derived from the Company's unaudited Consolidated Financial
Statements, prepared on a basis consistent with the Company's audited
Consolidated Financial Statements which appear elsewhere in this Prospectus. In
the opinion of the Company's management, this information includes all
adjustments (consisting only of normal recurring adjustments except for a $14.7
million stock compensation charge recorded in the first quarter of 1998 in
connection with the Option Plan) necessary for the fair presentation of such
information. Past quarterly operating results are not necessarily indicative of
the results that may be expected for future periods. The data should be read in
conjunction with the Consolidated Financial Statements, related Notes and other
financial information of the Company included elsewhere in this Prospectus.
Quarterly results are based on fiscal quarters of thirteen weeks in duration
ending on the last Saturday of each quarter. See "-- Overview."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
MARCH 29, JUNE 28, SEPTEMBER 27, DECEMBER 27, MARCH 28,
1997 1997 1997 1997 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue............................... $247.0 $283.1 $392.2 $502.0 $549.6
Cost of revenue....................... 254.1 280.3 370.7 447.8 487.3
------ ------ ------ ------ ------
Gross profit (loss)............... (7.1) 2.8 21.5 54.2 62.3
Operating expenses:
Research and development............ 26.4 25.5 26.7 27.6 33.4
Selling, general and
administrative.................... 15.1 15.4 15.5 16.6 15.9
Stock compensation expense.......... -- -- -- -- 14.7(1)
------ ------ ------ ------ ------
Total operating expenses.......... 41.5 40.9 42.2 44.2 64.0(1)
------ ------ ------ ------ ------
Income (loss) from operations......... (48.6) (38.1) (20.7) 10.0 (1.7)(1)
Interest expense...................... (7.9) (8.7) (10.9) (9.0) (8.8)
Interest and other income............. 1.8 0.4 0.4 22.4(2) 0.3
------ ------ ------ ------ ------
Income (loss) before income taxes..... (54.7) (46.4) (31.2) 23.4 (10.2)
Provision for income taxes............ 0.3 0.2 0.2 0.3 0.1
------ ------ ------ ------ ------
Net income (loss)..................... $(55.0) $(46.6) $(31.4) $ 23.1(2) $(10.3)(1)
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
MARCH 29, JUNE 28, SEPTEMBER 27, DECEMBER 27, MARCH 28,
1997 1997 1997 1997 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF REVENUE:
Revenue............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue....................... 102.9 99.0 94.5 89.2 88.7
----- ----- ----- ----- -----
Gross profit (loss)................... (2.9) 1.0 5.5 10.8 11.3
Operating expenses:
Research and development............ 10.7 9.0 6.8 5.5 6.0
Selling, general and
administrative.................... 6.1 5.5 4.0 3.3 2.9
Stock compensation expense.......... -- -- -- -- 2.7(1)
----- ----- ----- ----- -----
Total operating expenses..... 16.8 14.5 10.8 8.8 11.6(1)
----- ----- ----- ----- -----
Income (loss) from operations......... (19.7) (13.5) (5.3) 2.0 (0.3)
Interest expense...................... (3.2) (3.0) (2.8) (1.8) (1.7)
Interest and other income............. 0.7 0.1 0.1 4.5 0.1
----- ----- ----- ----- -----
Income (loss) before income taxes..... (22.2) (16.4) (7.9) 4.7 (1.9)(1)
Provision for income taxes............ 0.1 0.1 0.1 0.1 0.0
----- ----- ----- ----- -----
Net income (loss)..................... (22.3) (16.5) (8.0) 4.6 (1.9)(1)
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Total operating expenses, loss from operations and net loss for the three
months ended March 28, 1998 reflect a $14.7 million compensation charge
related to the variable accounting features of the Option Plan. Without such
expense the Company would have had total operating expenses of $49.3
million, income from operations of $13.0 million and net income of $4.4
million. The Option Plan has been amended and restated to remove the
variable features and provide for fixed award options. See Note 10 of Notes
to Consolidated Financial Statements.
(2) Includes recovery of a $20.0 million reserved note from IMS.
40
<PAGE> 42
Revenue. During the five quarter period ended March 28, 1998, the Company's
revenue grew by 122.5%, increasing from $247.0 million in the first quarter of
1997 to $549.6 million in the first quarter of 1998. The quarter-to-quarter
increase in revenue is attributable primarily to an increase in unit shipments
arising from improved time-to-market entry and time-to-volume production and a
shift in the Company's customer base to PC OEMs. Revenue growth from increased
unit shipments was offset partially by continued rapid price erosion in the HDD
market as a whole, which resulted in declining ASPs throughout the period. The
Company believes that the effect of market ASP declines on the Company's ASPs
was contained somewhat by the Company's improved time-to-market entry and
time-to-volume production and by a Company trend toward shipping higher-capacity
HDDs, which tend to have higher initial ASPs.
From the first quarter of 1997 to the first quarter of 1998, revenue from
sales to OEMs increased from 54.5% to 75.8% of the Company's revenue. During
this period, sales to three of the largest OEMs, Compaq, Dell and IBM, increased
from 24.0% to 51.8% of the Company's revenue.
Cost of Revenue; Gross Profit (Loss). Cost of revenue consists principally
of the cost of HDD components purchased from outside vendors, labor and
manufacturing overhead. During the five quarter period ended March 28, 1998,
gross profit (loss) improved from ($7.1) million in the first quarter of 1997 to
$62.3 million in the first quarter of 1998. Gross margin improved,
quarter-over-quarter during this period, increasing from (2.9)% in the first
quarter of 1997 to 11.3% in the first quarter of 1998. The quarter-over-quarter
improvement in gross margin is due primarily to the timely introduction of new
higher margin products which achieved market acceptance and higher manufacturing
yields. Gross margins also were favorably affected by improved product designs
and lower component costs. Growth of the Company's gross margins, however, was
constrained partially by continued rapid price erosion in the HDD market as a
whole, which resulted in declining ASPs throughout the period. See "Relationship
between the Company and HEA -- Purchases from Affiliates."
Operating Expenses.
Research and Development Expenses. During each of the five quarters ended
March 28, 1998, the Company made substantial R&D investments primarily related
to improving the Company's competitiveness in areal density. R&D as a percentage
of revenue decreased from 10.7% to 5.5% during the 1997 fiscal year while the
absolute dollar level of R&D spending during each quarter of the 1997 fiscal
year remained relatively constant. In the first quarter of 1998, however, R&D
spending increased to $33.4 million, or 6.0% of revenue, from $27.6 million, or
5.5% of revenue, in the fourth quarter of 1997. This increase was due to the
Company's efforts to develop new products for the desktop PC market and future
products in other HDD market segments. The Company anticipates that R&D expenses
will continue to increase in absolute dollars during 1998 due to continuing
efforts to diversify the Company's product portfolio. See "-- Overview."
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses consist mainly of employee-related expenses,
including sales commissions, and outside services. During the five quarter
period ended March 28, 1998, the Company's SG&A expenses as a percentage of
revenue declined from a high of 6.1% in the first quarter of 1997 to a low of
2.9% during the first quarter of 1998. During this five quarter period, SG&A
expenses were relatively flat on an absolute dollar basis, except for the fourth
quarter of 1997, when they increased primarily due to an accrual for
company-wide employee incentive bonuses resulting from above-target performance
during 1997 and, to a lesser extent, an increase in sales and marketing
personnel. The decrease in SG&A expenses as a percentage of revenue during this
five quarter period is due to the increase in the Company's revenue combined
with the Company's ongoing cost control efforts. The Company anticipates that
SG&A expenses will increase in absolute dollars during 1998 due to expenses
related to expected increased sales activity.
Stock Compensation Expense. In 1996 the Company adopted the Option Plan,
pursuant to which substantially all of the Company's domestic employees and
certain international employees received options under the Option Plan which
resulted in variable accounting treatment. The Company recorded a non-cash
compensation expense of $14.7 million in the first quarter of 1998, related to
the difference between the estimated fair market value of its stock as of March
28, 1998 and the exercise price of the options granted under the Option Plan
between May 1996 and October 1997. If this expense were not incurred in the
first
41
<PAGE> 43
quarter of 1998, the Company would have realized net income of $4.4 million in
such period. The Company amended and restated the Option Plan to remove the
features which resulted in variable accounting. The Company will incur non-cash
stock compensation expense in connection with the Amended Plan in each quarter
through [the end of] fiscal year 2001 in amounts expected to decrease from a
high of approximately $2.3 million in the second quarter of 1998 to a low of
approximately $0.1 million in the fourth quarter of 2001, assuming all options
remain in effect. After that point, no further stock compensation expenses will
be incurred in connection with the Amended Plan. MMC has agreed to reimburse the
Company for any stock compensation expenses arising from grants made to MMC
employees under the Option Plan. See "Overview."
Interest Expense. During the five quarter period ended March 28, 1998, the
Company's interest expense as a percentage of revenue declined from a high of
3.2% in the first quarter of 1997 to a low of 1.7% in the first quarter of 1998.
During the first three quarters of 1997, the Company's interest expense
increased due to a growth in short-term borrowings used to fund the Company's
operations. During the fourth quarter of 1997 and first quarter of 1998, the
Company's interest expense declined due to conversion of $200.0 million of
subordinated debt held by HEA into equity in the Company with an associated
reduction in interest payments, and a reduction in other debt of $53.9 million.
The benefits derived from such debt reductions were, however, partially offset
by an increase in the Company's interest expense due to higher interest rates
applied to the Company's intercompany loan from HEA and bank credit facilities,
in each case as a result of the higher cost of borrowing resulting from changes
in the economic environment in Korea.
Interest and Other Income. During the five quarter period ended March 28,
1998, the Company's interest and other income remained relatively constant at
approximately 0.1% of revenue, except for one time events in the first and
fourth quarters of 1997 which related to the recovery of a $1.3 million fully
reserved note issued to the Company by Storage Dimensions, Inc. ("SDI") and a
$20.0 million fully reserved note issued to the Company by IMS.
Potential Fluctuations in Quarterly Results. The Company has experienced,
and expects to continue to experience, fluctuations in sales and operating
results from quarter to quarter. As a result, the Company believes that period
to period comparisons of its operating results are not necessarily meaningful,
and that such comparisons cannot be relied upon as indicators of future
performance. The Company's operating results may be subject to significant
quarterly fluctuations as a result of a number of factors, including: (i) the
Company's ability to be among the first to volume production with competitive
products in a timely manner; (ii) fluctuations in HDD product demand as a result
of the cyclical and seasonal nature of the PC industry; (iii) the availability
and extent of utilization of manufacturing capacity; (iv) unanticipated changes
in product or customer mix; (v) entry of new competitors; (vi) the lengthy,
complex and difficult process of qualifying the Company's products with its
customers; (vii) cancellation or rescheduling of significant orders; (viii)
deferrals of customer orders in anticipation of new products or enhancements;
(ix) the impact of price protection measures and return privileges granted by
the Company to certain distributors; (x) component and raw material costs and
availability, particularly with respect to components obtained from sole or
limited sources; (xi) the availability of adequate capital resources; (xii)
increases in R&D expenditures to maintain the Company's competitive position;
(xiii) changes in the Company's strategy; (xiv) personnel changes; and (xv)
other general economic and competitive factors. Moreover, since a large portion
of the Company's operating expenses, including rent, salaries, capital lease and
debt payments and equipment depreciation, are relatively fixed and difficult to
reduce or modify, the adverse effect of any decrease in revenue as a result of
fluctuations in product demand or otherwise will be magnified by the fixed
nature of such operating expenses and could have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors -- Potential Fluctuations in Quarterly Results; Average Selling Price
Erosion; Management of Growth."
42
<PAGE> 44
THREE MONTHS ENDED MARCH 29, 1997 COMPARED TO THREE MONTHS ENDED MARCH 28, 1998
(UNAUDITED).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 29, MARCH 28,
1997 1998
--------- ---------
(IN MILLIONS)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $247.0 $549.6
Cost of revenue............................................. 254.1 487.3
------ ------
Gross profit (loss)....................................... (7.1) 62.3
Operating expenses:
Research and development.................................. 26.4 33.4
Selling, general and administrative....................... 15.1 15.9
Stock compensation expense................................ -- 14.7(1)
------ ------
Total operating expenses.................................. 41.5 64.0(1)
------ ------
Loss from operations........................................ (48.6) (1.7)(1)
Interest expense............................................ (7.9) (8.8)
Interest and other income................................... 1.8 0.3
------ ------
Loss before income taxes.................................... (54.7) (10.2)
Provision for income taxes.................................. 0.3 0.1
------ ------
Net loss.................................................... $(55.0) $(10.3)(1)
====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 29, MARCH 28,
1997 1998
--------- ---------
<S> <C> <C>
AS A PERCENTAGE OF REVENUE:
Revenue..................................................... 100.0% 100.0%
Cost of revenue............................................. 102.9 88.7
------ ------
Gross profit (loss)....................................... (2.9) 11.3
Operating expenses:
Research and development.................................. 10.7 6.0
Selling, general and administrative....................... 6.1 2.9
Stock compensation expense................................ -- 2.7(1)
------ ------
Total operating expenses.................................. 16.8 11.6(1)
------ ------
Loss from operations........................................ (19.7) (0.3)(1)
Interest expense............................................ (3.2) (1.7)
Interest and other income................................... 0.7 0.1
------ ------
Loss before income taxes.................................... (22.2) (1.9)
Provision for income taxes.................................. 0.1 --
------ ------
Net loss.................................................... (22.3) (1.9)(1)
====== ======
</TABLE>
- ---------------
(1) Total operating expenses, loss from operations and net loss for the three
months ended March 28, 1998 reflect a $14.7 million compensation charge
related to the variable accounting features of the Option Plan. Without such
charge, the Company would have had total operating expenses of $49.3
million, income from operations of $13.0 million and net income of $4.4
million. The Option Plan has been amended and restated to remove the
variable features and provide for fixed award options. See Note 10 of Notes
to Consolidated Financial Statements.
Revenue. Between the first quarter of 1997 and the first quarter of 1998,
the Company's revenue grew by 122.5%, increasing from $247.0 million in the
first quarter of 1997 to $549.6 million the first quarter of 1998. This increase
in revenue is attributable primarily to an increase in unit shipments arising
from improved time-to-market entry and time-to-volume production and a
strengthening of the Company's customer base. Revenue growth from increased unit
shipments was partially offset by continued rapid price erosion in the HDD
market as a whole, which resulted in declining ASPs throughout the period. The
Company believes that
43
<PAGE> 45
the effect of HDD market ASP declines on the Company ASPs was contained somewhat
by the Company's improved time-to-market entry and time-to-volume production and
by a Company trend toward shipping higher-capacity HDDs, which tend to have
higher initial ASPs.
From the first quarter of 1997 to the first quarter of 1998, revenue from
sales to OEMs increased from 54.5% to 75.8% of the Company's revenue. During
this period, sales to three of the largest OEMs, Compaq, Dell and IBM, increased
from 24.0% to 51.8% of the Company's revenue.
Gross Profit (Loss). Gross profit (loss) improved from ($7.1) million in
the first quarter of 1997 to $62.3 million in the first quarter of 1998. Gross
margin increased from (2.9)% in the first quarter of 1997 to 11.3% in the first
quarter of 1998. The improvement in gross margin is due to the timely
introduction of new higher margin products which achieved market acceptance and
higher manufacturing yields. Gross margin also was favorably affected by
improved product designs which led to improved manufacturing yields and lower
component costs. Growth of the Company's gross margins, however, was constrained
partially by continued rapid price erosion in the HDD market as a whole, which
resulted in declining ASPs for the Company's products. See "Relationship Between
the Company and Hyundai -- Purchases from Affiliates."
Operating Expenses.
Research and Development Expenses. R&D as a percentage of revenue decreased
from 10.7% in the first quarter of 1997 to 6.0% in the first quarter of 1998
while the absolute dollar level of R&D spending during the same periods
increased from $26.4 million to $33.4 million. This increase was due to the
Company's efforts to develop new products for the desktop PC market and future
products in other HDD market segments.
Selling, General and Administrative Expenses. SG&A expenses as a percentage
of revenue declined from 6.1% in the first quarter of 1997 to 2.9% during the
first quarter of 1998 while the absolute dollar level of SG&A expenses was
relatively flat at $15.1 million and $15.9 million, respectively. The decrease
in SG&A expenses as a percentage of revenue between these periods was due to the
increase in the Company's revenues combined with the Company's ongoing cost
control efforts.
Stock Compensation Expense. In 1996 the Company adopted the Option Plan,
pursuant to which substantially all of the Company's domestic employees and
certain international employees received options under the Option Plan which
resulted in variable accounting treatment. The Company recorded a non-cash
compensation expense of $14.7 million in the first quarter of 1998, related to
the difference between the estimated fair market value of its stock as of March
28, 1998 and the exercise price of the options granted under the Option Plan
between May 1996 and October 1997. The Company amended and restated the Option
Plan to remove the features which resulted in variable accounting. If this
expense were not incurred in the first quarter of 1998, the Company would have
realized net income of $4.4 million for the first quarter.
Interest Expense. Interest expense as a percentage of revenue declined from
3.2% in the first quarter of 1997 to 1.7% in the first quarter of 1998, while
the absolute dollar level of interest expense increased from $7.9 million in the
first quarter of 1997 to $8.8 million in the first quarter of 1998. Interest
expense increased 65.2% from $22.1 million in 1996 to $36.5 million in 1997.
This increase was due to a substantial growth in short-term and long-term
borrowings required to fund the Company's operations. The increase in the
absolute dollar amount of the Company's interest expense between the first
quarter of 1997 and the first quarter of 1998 was, due, in part, to higher
interest rates applied to the Company's intercompany loan from HEA and bank
credit facilities, in each case as a result of the higher cost of borrowing
resulting from changes in the economic environment in Korea. The Company had
$274.8 million of short-term and $224.1 million of long-term credit borrowings
outstanding at March 29, 1997, as compared to $130.9 million of short-term and
$219.0 of long-term credit borrowings outstanding at March 28, 1998.
Interest and Other Income. Interest and other income declined from $1.8
million to $0.3 million between the first quarter of 1997 and the first quarter
of 1998. The higher rate of interest income in the first quarter of 1997
resulted from the recovery of a $1.3 million fully reserved note issued to the
Company by SDI.
44
<PAGE> 46
TWELVE MONTHS ENDED DECEMBER 28, 1996 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 27, 1997. IN THE FOLLOWING DISCUSSION, REFERENCES TO 1996 ARE TO THE
TWELVE MONTHS ENDED DECEMBER 28, 1996 AND REFERENCES TO 1997 ARE TO THE FISCAL
YEAR ENDED DECEMBER 27, 1997.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $1,113.8 $1,424.3
Cost of revenue............................................. 1,191.7 1,352.9
-------- --------
Gross profit (loss)....................................... (77.9) 71.4
Operating expenses:
Research and development.................................. 113.1 106.2
Selling, general and administrative....................... 82.9 62.6
-------- --------
Total operating expenses.................................. 196.0 168.8
-------- --------
Loss from operations........................................ (273.9) (97.4)
Interest expense............................................ (22.1) (36.5)
Interest and other income................................... 1.3 25.0(1)
-------- --------
Loss before income taxes.................................... (294.7) (108.9)
Provision for income taxes.................................. 1.5 1.0
-------- --------
Net loss.................................................... $ (296.2) $ (109.9)(1)
======== ========
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
AS A PERCENTAGE OF REVENUE:
Revenue..................................................... 100.0% 100.0%
Cost of revenue............................................. 107.0 95.0
-------- --------
Gross profit (loss)....................................... (7.0) 5.0
Operating expenses:
Research and development.................................. 10.2 7.5
Selling, general and administrative....................... 7.4 4.4
-------- --------
Total operating expenses.................................. 17.6 11.9
-------- --------
Loss from operations........................................ (24.6) (6.9)
Interest expense............................................ (2.0) (2.6)
Interest and other income................................... 0.1 1.8(1)
-------- --------
Loss before income taxes.................................... (26.5) (7.7)
Provision for income taxes.................................. 0.1 0.1
-------- --------
Net loss.................................................... (26.6) (7.8)(1)
======== ========
</TABLE>
- ---------------
(1) Includes recovery of a $20.0 million fully-reserved note from IMS.
Revenue. Between 1996 and 1997, the Company's revenue grew by 27.9%,
increasing from $1,113.8 million to $1,424.3 million. The increase in revenue is
attributable primarily to an increase in unit shipments arising from improved
time-to-market entry and time-to-volume production and a strengthening of the
Company's customer base during 1997. Revenue growth from increased unit
shipments was partially offset by continued rapid price erosion in the HDD
market as a whole, which resulted in declining ASPs throughout the
45
<PAGE> 47
period. The Company believes that during 1997 the effect of HDD market ASP
declines on the Company's ASPs was contained somewhat by the Company's improved
time-to-market entry and time-to-volume production and by a Company trend toward
shipping higher-capacity HDDs, which tend to have higher initial ASPs.
From 1996 to 1997, revenue from sales to OEMs increased from 52.7% to 64.4%
of the Company's revenue, even though the 1997 results did not include any
revenues from IMS while the 1996 results include $44.0 million in OEM revenues
attributable to IMS (in which the Company held a controlling interest prior to
June 1996). During 1997, sales to three of the largest OEMs, Compaq, Dell and
IBM, increased from 10.8% to 37.8% of the Company's revenues.
Gross profit (loss). Gross profit (loss) improved from a loss of $77.9
million in 1996 to a profit of $71.4 million in 1997. Gross margin increased
from (7.0)% for 1996 to 5.0% for 1997. The improvement in gross margin in 1997
is due primarily to the timely introduction of new higher margin products which
achieved market acceptance and higher manufacturing yields. During 1997, gross
margin also was favorably affected by improved product designs and lower
component costs. Growth of the Company's gross margin during 1997, however, was
partially constrained by continued rapid price erosion in the HDD market as a
whole which resulted in declining ASPs for the Company's products.
Operating Expenses
Research and Development Expenses. R&D expense as a percentage of revenue
decreased from 10.2% in 1996 to 7.5% in 1997, while the absolute dollar level of
R&D spending during 1997 declined only slightly from 1996 levels. During 1997
R&D expenditures were focused on desktop HDDs as a result of the rationalization
of the Company's product and technology roadmap to focus on desktop HDDs
utilizing a single core technology platform and MR head technology.
Selling, General and Administrative Expenses. SG&A expense as a percentage
of revenue declined from 7.4% in 1996 to 4.4% in 1997, while the absolute dollar
level of SG&A spending declined from $82.9 million to $62.6 million over the
same period. Starting in the second half of 1996, SG&A expenses were reduced as
a result of the Company's cost reduction efforts, as well as the sale of the
majority ownership interest in IMS in June 1996. While substantial expense
reductions occurred in 1996, the Company focused on cost containment in 1997.
Interest Expenses. Interest expense increased 65.2% from $22.1 million in
1996 to $36.5 million in 1997. This increase was due to a substantial growth in
short-term and long-term borrowings required to fund the Company's operations.
During the fourth quarter of 1997, the Company's interest expense was offset by
the conversion of $200.0 million of subordinated debt held by HEA into equity in
the Company with an associated reduction in interest payments. The benefit
derived from such debt reduction was, however, partially offset by an increase
in the Company's interest expense due to higher interest rates applied to the
Company's intercompany loan from HEA and bank credit facilities, in each case as
a result of the higher cost of borrowing resulting from changes in the economic
environment in Korea. The Company had $165.1 million of short-term and $224.3
million of long-term indebtedness outstanding at December 27, 1997, as compared
to $149.8 million of short-term and $229.1 of long-term indebtedness outstanding
at December 28, 1996.
Interest and Other Income. Interest and other income increased from $1.3
million in 1996 to $25.0 million in 1997 due to the recovery of a $1.3 million
fully reserved note issued to the Company by SDI, and a $20.0 million fully
reserved note issued to the Company by IMS.
46
<PAGE> 48
NINE MONTHS ENDED DECEMBER 30, 1995 COMPARED TO THE NINE MONTHS ENDED
DECEMBER 28, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $954.0 $ 798.9
Cost of revenue............................................. 893.4 888.9
------ -------
Gross profit (loss)....................................... 60.6 (90.0)
------ -------
Operating expenses:
Research and development.................................. 69.4 87.8
Selling, general and administrative....................... 60.5 60.7
Other....................................................... 4.5 --
------ -------
Total operating expenses.................................. 134.4 148.5
------ -------
Loss from operations........................................ (73.8) (238.5)
Interest expense............................................ (7.8) (18.1)
Interest and other income................................... 0.8 1.0
------ -------
Loss before income taxes.................................... (80.8) (255.6)
Provision for income taxes.................................. 2.1 0.8
------ -------
Net loss.................................................... $(82.9) $(256.4)
====== =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
AS A PERCENTAGE OF REVENUE:
Revenue..................................................... 100.0% 100.0%
Cost of revenue............................................. 93.6 111.3
----- -----
Gross profit (loss)....................................... 6.4 (11.3)
----- -----
Operating expenses:
Research and development.................................. 7.3 11.0
Selling, general and administrative....................... 6.3 7.6
Other....................................................... 0.5 --
----- -----
Total operating expenses.................................. 14.1 18.6
----- -----
Loss from operations........................................ (7.7) (29.9)
Interest expense............................................ (0.8) (2.3)
Interest and other income................................... 0.1 0.1
----- -----
Loss before income taxes.................................... (8.4) (32.1)
Provision for income taxes.................................. 0.2 0.1
----- -----
Net loss.................................................... (8.6) (32.2)
===== =====
</TABLE>
Revenue. For the nine month period ended December 28, 1996 as compared to
the nine month period ended December 30, 1995, revenue decreased by 16.3%. This
decrease was attributable primarily to an approximately 22.0% decline in unit
shipments and continued rapid price erosion in the HDD market as a whole which
resulted in declining ASPs for the Company's products throughout the period.
During the nine month period ended December 28, 1996, revenue from the OEM
customer channel declined from the comparable 1995 period by 32.0% due to
delayed product introductions and product performance and quality problems. This
decline was offset partially by a 17.0% increase in revenue from sales to
distributors. Part of the revenue decrease during the 1996 period is also
attributable to the sale of a majority ownership interest in IMS in June 1996.
Revenue for 1995 also reflects a 40-week period as compared to a 39-week period
for 1996, as the first quarter of 1995 was extended to realign the Company's
fiscal year with HEA's fiscal year.
47
<PAGE> 49
Gross Profit (loss). For the nine month period ended December 28, 1996 as
compared to the nine month period ended December 30, 1995, gross profit
decreased by 248.5%, primarily due to the decrease in unit shipments and a
substantial decline in ASPs discussed above. In June 1996, the Company incurred
a $42.3 million charge for products in inventory and scheduled to be built over
the following six months which had market prices lower than cost. Furthermore,
in 1996, the Company incurred one-time charges of $6.5 million related to the
consolidation of its manufacturing operations to a single facility in Singapore,
including the closure of a head stack assembly plant in Thailand.
Operating Expenses.
Research and Development Expenses. Between the nine month periods ended
December 30, 1995 and December 28, 1996, R&D expenses increased from $69.4
million to $87.8 million, respectively. This increase was due to the Company's
establishment in 1996 of the advanced technology group in Milpitas, California
and a production engineering group in Singapore. In the third quarter of the
1996 period, the Company incurred charges of approximately $4.5 million related
to obsolete equipment and internally built equipment not utilized due to rapid
changes in product volumes and mix during the latter half of 1996.
Selling, General and Administrative Expenses. During the 1996 period as
compared to the 1995 period, the absolute dollar level of SG&A expenses remained
relatively unchanged; however, such expenses increased as a percentage of
revenue primarily due to the decrease in the Company's revenue base. Certain
SG&A expenses decreased during the 1996 period due to reductions in the
Company's workforce and savings associated with the sale of a majority ownership
interest in IMS in June 1996. This decrease in SG&A expenses was offset by
charges related to severance costs incurred throughout 1996, caused by a
substantial change in executive staff.
Other Expenses. Other expenses in 1995 consisted of $4.5 million of
professional fees related to the acquisition of the Company by HEA.
Interest Expense. For the nine month period ended December 28, 1996 as
compared to the nine month period ended December 30, 1995, interest expense
increased due to a growth in short-term and long-term borrowings used to fund
the Company's operations. The Company had $149.8 million of short-term and
$229.1 million of long-term indebtedness outstanding at December 28, 1996,
compared to $99 million of short-term indebtedness outstanding at December 30,
1995.
Interest and Other Income. During the nine month period ended December 28,
1996, interest income increased slightly due to the availability of cash for
investing purposes.
YEAR 2000 COMPLIANCE
The Company is preparing to implement a new enterprise-wide information
system provided by SAP, AG, in the third quarter of 1998. The SAP System is
designed to automate more fully the Company's business processes and will affect
most functional areas, including, without limitation, finance, procurement,
inventory control, collections, order processing and manufacturing, and its
implementation will require certain upgrades in the Company's existing computer
hardware systems. Historically, there have been substantial delays in
implementation of such systems at other companies. Unlike most companies, which
implement new information systems in stages over time, the Company has chosen to
install and activate the SAP System across most functional areas of the Company
simultaneously. The Company believes it is among the first to undertake such a
broad, simultaneous implementation of the SAP System. This approach may
substantially increase the risk of delay or failure in the system
implementation. Implementation of the SAP System will be complex, expensive and
time intensive and its successful implementation could be adversely affected by
various factors, including: (i) any failure to provide adequate training to
employees; (ii) any failure to retain skilled members of the implementation team
or find suitable replacements for such personnel; (i) the scope of the
implementation plan being expanded by unanticipated changes in the Company's
business; (iii) any inability to extract data from the Company's existing
information system and convert that data into a format that can be accepted by
the SAP System; (iv) any failure to devise and run appropriate testing
procedures that accurately reflect the demands that will be placed on the new
system following its implementation; and
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following its implementation; and (vi) any failure to develop and implement
adequate fall-back procedures in the event that difficulties or delays arise
during the initial start-up phase of the SAP System.
In connection with the implementation of the SAP System, the Company may
experience functional and performance problems, including problems relating to
the SAP System's response time and data integrity. In addition, resolution of
any such problems could entail additional costs. Moreover, as a result of the
Company's simultaneous implementation approach, the Company will not have an
operational backup information system in the event of a failure of the SAP
System. There can be no assurance that the Company will be able to implement the
SAP System successfully on a timely and cost effective basis or that the SAP
System will not fail or prove to be unsuitable for the Company's needs. The
inability of the Company to implement or resolve problems with the SAP System in
a timely manner could have a material adverse effect on the Company's business,
financial condition and results of operations. No amounts have been accrued in
the Company's Consolidated Financial Statements included elsewhere in this
Prospectus for any probable expenses or lost revenue that could result from
problems in implementing the SAP System. See "Relationship between the Company
and Hyundai" and "Certain Transactions."
LIQUIDITY AND CAPITAL RESOURCES
At March 28, 1998, the Company had $13.3 million in cash and cash
equivalents as compared to $16.9 million at December 27, 1997. Operating
activities provided net cash of $33.6 million for the three month period ended
March 28, 1998 as compared to utilizing net cash of $82.6 million for the three
month period ended March 29, 1997. Cash provided by operating activities for the
quarter ended March 28, 1998 was generated principally by operations and
supplemented by a decrease in working capital. The increase in cash generated
from operations was primarily due to increased sales and improved margins.
Investing activities provided $1.7 million. During the quarter, the Company paid
down debt of $38.9 million.
At December 27, 1997, the Company had $16.9 million in cash and cash
equivalents as compared to $31.3 million at December 28, 1996. Net cash used in
operating activities was $146.7 million during fiscal year 1997. Cash used in
operating activities was utilized to fund a net loss of $109.9 million (other
than $65.6 million of non-cash depreciation and amortization expense included
therein), an increase in accounts receivable and inventories totaling $142.5
million and $74.4 million, respectively, was offset by an increase in accounts
payable of $102.1 million. The increases in accounts receivables, inventories
and accounts payable resulted from increased unit shipments. Net cash used in
investing activities of $61.3 million consisted primarily of capital
expenditures to add manufacturing capacity in the Singapore facility, to effect
the transition from thin-film to MR head technology and to improve operating
efficiency. Cash used in both operating and investing activities was provided
through approximately $265.0 million in working capital loans from HEA ($200.0
million of which was converted into equity in December 1997). In addition, the
Company paid off $65.0 million of bank debt during 1997.
At March 28, 1998, the Company had $350.5 million of short-term and
long-term unsecured debt comprised of $200.5 million of credit facilities from
various banks, $55.0 million of inter-company debt from HEA and $95.0 million of
publicly-traded convertible debt. The Company will use part of the net proceeds
from the Offerings to repay all of the Bank Debt and the inter-company loan of
$55.0 million. The remaining amount of the proceeds will be available for
capital expenditures, working capital and general corporate purposes.
As of March 28, 1998, HEI guaranteed $170.0 million of the Bank Debt. Due
to the economic conditions in Korea and a significant recent devaluation of the
Korean Won versus the U.S. Dollar, HEI was not in technical compliance with
certain financial covenants associated with its guarantee for the year ended
December 27, 1997. This non-compliance by HEI was waived by the lending banks in
June 1998 in exchange for the replacement of HEI by HHI, a partial owner of HEA,
as the guarantor and an increase in pricing to reflect borrowing rates based on
HHI's current credit rating. This waiver is subject to closing all the related
documentation. The Company has closed the waiver agreements with respect to
$160.0 million of the Bank Debt now guaranteed by HHI. The noncompliance also
results in a cross-default under a demand facility with $30.0 million
outstanding principal amount as of March 28, 1998 that is not guaranteed. The
Company
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believes that it will be able to obtain a waiver for the remaining $10.0 million
of the guaranteed bank debt and the remaining cross-default under the $30
million demand facility.
The Company also has an asset securitization program under which the
Company sells its accounts receivable on a non-recourse basis. At March 28,
1998, $100.0 million of accounts receivable was securitized under the program.
Continuance of the program is subject to certain conditions, including a
condition that all of the long-term public senior debt securities of HHI not
fall below a specified rating. In addition, the securitization program remains
subject to certain conditions subsequent related to obtaining a performance
guarantee from HHI of the obligations of the Company and certain of its
affiliates under the securitization program. The Company must satisfy these
conditions subsequent by June 14, 1998 and presently believes that it will be
able to satisfy these conditions. The Company is currently exploring
alternatives to establish a replacement asset securitization program and/or
credit facilities which will not require any support from any affiliate of HEA.
The Company believes it will be able to obtain such an asset securitization
program and/or credit facilities. If, however, the Company is unable to satisfy
the conditions subsequent or obtain alternative financing, there will be a
material adverse impact on the business, financial condition and results of
operations of the Company.
The Company has been investing significant amounts of capital to increase
the capacity and enhance the productivity of its Singapore manufacturing
facility. In the twelve month period ended December 27, 1997, the nine month
period ended December 28, 1996 and the twelve month period ended March 30, 1996,
the Company made capital expenditures, net of disposals, of $81.9 million, $53.4
million and $72.3 million, respectively. During 1998, capital expenditures are
expected to be approximately $100.0 million, to be used principally for adding
manufacturing capacity and implementing the Company's SAP program and other
related information technology systems. The Company anticipates that it may need
additional manufacturing capacity as early as the beginning of the year 2000. In
anticipation of that need, in the summer of 1997, HEI began construction of the
Dalian Facility, a 450,000 square foot manufacturing facility in Dalian, China
for the purpose of making additional manufacturing capacity available to Maxtor.
The Dalian Facility is only partially completed and construction is continuing
at a reduced pace. HEI has expended approximately $23.0 million on the
construction to date. An additional estimated $60.0 million investment will be
required to complete the Dalian Facility to the point where manufacturing lines
can be installed, and an estimated additional $25.0 million of machinery and
equipment will be required to make the facility ready for its initial phase of
operations. The Company and HEI have agreed to discuss the terms under which the
Dalian Facility will be completed and by which the Company would either buy or
lease the Dalian Facility from HEI, and the Company intends to utilize the
Dalian Facility if acceptable terms can be agreed upon. There can be no
assurance that the Company will be able to successfully negotiate any such
agreement with HEI or that the Dalian Facility will be completed by the time
Maxtor requires additional capacity. The terms of any agreement with regard to
the Dalian Facility is subject to the approval of the Affiliated Transactions
Committee of the Board. Moreover, any such agreement would be conditioned on the
transfer of HEI's business license for the Dalian Facility and the transfer of
HEI's tax holiday status and other regulatory concessions in Dalian to the
Company. If the Company is unable to reach agreement with HEI on acceptable
terms or obtain the tax holiday status and other regulatory concessions and the
applicable business license, the Company may need to acquire additional
manufacturing capacity at other sites. In addition to the Dalian Facility, the
Company currently is investigating other manufacturing facilities within Asia.
Although the Company believes that alternative manufacturing facilities will be
available, a failure by the Company to obtain, on a timely basis, a facility or
facilities which allow the Company to meet its customers' demands will limit the
Company's growth and could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors -- Need for Additional Capital," "-- Single Manufacturing Facility;
Future Need for Additional Capacity." "-- Dependance on International Operation;
Risks from International Sales," "Business -- Manufacturing" and "Certain
Transactions."
The Company believes that the proceeds of the Offerings, together with cash
generated from operations and borrowing capacity, will be sufficient to fund its
operations through at least the next 12 months. The Company requires substantial
working capital to fund its business, particularly to finance accounts
receivables and inventory, and to invest in property and equipment. The Company
may seek long-term financing
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arrangements, including a line of credit to fund its future capacity expansion
plans, as necessary. However, the Company's cash needs will depend on, among
other things, demand in the desktop HDD market and pricing conditions. There can
be no assurance that lower than expected revenue, increased expenses, decisions
to increase capacity or other events including the acquisition of technology,
products or businesses will not cause the Company to seek more capital, or to
seek capital sooner than currently expected. If the Company needs additional
capital, there can be no assurance that such additional financing can be
obtained, or, if obtained, that it will be available on satisfactory terms. The
failure to obtain additional financing on satisfactory terms would also hinder
the Company's ability to invest in capital expenditures or in research and
development and would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Risks
Associated with Leverage," "-- Need for Additional Capital" and "Relationship
Between the Company and Hyundai."
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
issued SFAS No 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for disclosure about
operating segments in annual financial statements and selected information in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. This
statement supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise." The new standard becomes effective for fiscal years
beginning after December 15, 1997, and requires that comparative information
from earlier years be restated to conform to the requirements of this standard.
The Company is evaluating the requirements of SFAS 131 and the effects, if any,
on the Company's current reporting and disclosures.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 provides guidance on when
costs related to software developed or obtained for internal use should be
capitalized or expensed. The SOP is effective for transactions entered into for
fiscal years beginning after December 15, 1998. The Company has reviewed the
provisions of the SOP and does not believe adoption of this standard will have a
material effect upon its results of operations, financial position or cash
flows.
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BUSINESS
The following discussion contains forward-looking statements within the
meaning of the U.S. federal securities laws, including statements regarding the
anticipated growth in the market for the Company's products, the Company's
expected manufacturing capacity, the belief of the Company as to its future
operating performance and other statements that are not historical facts.
Because such statements include risks and uncertainties, actual results may
differ materially from those anticipated in such forward-looking statements as a
result of certain factors, including those set forth in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Maxtor is a leading provider of HDD storage products for desktop PC
systems. The Maxtor DiamondMax product family consists of 3.5-inch form factor
HDDs with storage capacities which range from approximately 2.1 GB to 11.5 GB.
These products have a number of features including high speed interfaces for
greater data throughput, a robust mechanical design for improved reliability, MR
head technology and a DSP-based electronic architecture that, when combined,
provides industry-leading benchmark performance. The DiamondMax 2880, introduced
in February 1998, is Maxtor's fourth generation MR head drive, the fifth drive
utilizing the Company's DSP-based electronic architecture, and the seventh drive
based on the Company's Formula 4 mechanical architecture. The Company's
customers are leading PC OEMs, including Compaq, Dell and IBM; distributors,
such as Ingram; and retailers, such as Best Buy and CompUSA.
COMPANY BACKGROUND
The Company was founded in 1982 and completed an initial public offering of
common stock in 1986. In the mid-1980's, the Company was a leading technology
innovator in the HDD industry. As is true today, the HDD industry during the
1980's was intensely competitive, and characterized by rapid technological
change, rapid rates of product and technology obsolescence, changing customer
requirements, dramatic shifts in market share and significant erosion of ASPs.
In an effort to mitigate the risks associated with these factors, the Company
pursued all major product segments in the HDD market, utilizing multiple product
families and technology platforms. This costly strategy added significant
complexity to the business which caused the Company to delay or miss a number of
key product introductions and ultimately led to the deterioration of the
Company's overall financial condition. As a result of this deterioration, the
Company sold a 40% stake to HEI and its affiliates in 1994.
THE MAXTOR TURNAROUND
In early 1996, HEA acquired all of the remaining publicly-held shares of
the Common Stock and then acquired all of the remaining Common Stock from HEI
and its affiliates. Shortly thereafter, HEA invested in renewed efforts to
revitalize the Company. In July 1996, the Company hired Michael R. Cannon, its
current Chief Executive Officer and President, a 20 year veteran of the HDD
industry, who had previously served in senior management positions in the
systems storage division at IBM, SyQuest Technology ("SyQuest") and Control Data
Corporation. With a view toward capturing business at leading desktop PC OEMs,
Mr. Cannon identified four key areas requiring improvement:
Corporate Leadership. To provide strong leadership and the required focus
on execution, the Company recruited and promoted seasoned, industry veterans for
key senior management positions. In addition to Mr. Cannon, these management
changes included Paul J. Tufano, hired to serve as the Company's Vice President,
Finance, and Chief Financial Officer, who previously had spent more than 17
years in a variety of management positions at IBM; Dr. Victor B. Jipson, who was
promoted to the position of Senior Vice President, Engineering, and previously
had spent 16 years at IBM in a variety of research, technical strategy, product
strategy, research and development, and general management positions; William F.
Roach, the Company's Senior Vice President, Worldwide Sales and Marketing who
previously had spent 20 years in a variety of sales and marketing management
positions at Quantum and Intel Corp.; and K.H. Teh, the Company's Vice
President, Worldwide Manufacturing, who previously had spent 20 years in a
variety of manufacturing management positions at Iomega Corp. ("Iomega"),
Quantum and SyQuest. In addition, the
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Company added personnel with significant industry experience to its engineering,
manufacturing, procurement, human resources and sales and marketing departments.
Cost Competitiveness. In the third quarter of 1996, Maxtor aggressively
moved to reduce its cost structure. The Company ceased utilizing an HDD
manufacturing facility owned and operated by HEI in Korea and consolidated its
volume HDD manufacturing facilities in Singapore. Maxtor also closed its sub-
assembly manufacturing facility in Thailand and sold its majority interest in
IMS, its former PCB division, to certain members of IMS management and
institutional investors. These actions helped reduce the Company's workforce by
approximately 54%. The Company also removed layers of management and implemented
strict discretionary expense controls. In addition, the Company improved the
productivity of its research and development expenditures by rationalizing its
technology and product roadmap to focus on desktop PC HDDs using a single core
technology platform.
Timely Introduction of New Products. Maxtor's new management team took a
number of steps designed to improve time-to-market entry, time-to-volume
manufacturing, quality, performance and manufacturability of its products, and
the effectiveness and efficiency of the Company's research and development
expenditures. In particular, the Company: (i) simplified its product and
technology roadmap by canceling its 5.25-inch and 2.5-inch programs; (ii)
focused its research and development efforts on a single core technology
platform that includes MR head technology and a DSP-based electronic
architecture, which the Company believes are capable of supporting rapid
extension of the Company's product and technology roadmap; and (iii)
restructured its product development process by creating an advanced technology
group, which is responsible for assessing new technology viability, developing
early prototypes and exploiting common design architectures, and by
strengthening its existing product design teams, which are responsible for
taking the building blocks provided by the advanced technology group and
designing high performance, highly manufacturable, cost-effective products which
meet customer specifications.
Customer/Channel Mix. Recognizing that the vast majority of the growth in
the desktop PC market was being captured by a limited number of leading PC OEMs,
the new management team rationalized Maxtor's sales channels and focused its
sales and marketing resources on establishing the Company as a preferred
supplier to leading PC OEMs and a limited number of leading distributors and
retailers. To improve overall customer satisfaction and capture accounts with
leading PC OEMs, the Company took a number of steps to improve product quality
and created dedicated account support teams for its major PC OEM clients
emphasizing senior management involvement in developing and maintaining customer
relationships.
TURNAROUND RESULTS
As a result of the changes described above, Maxtor's performance has
improved significantly during a period of severe difficulties in the overall HDD
market.
Cost Competitiveness. The Company's cost competitiveness initiatives led to
a significant reduction of operating expenses. Maxtor's selling, general and
administrative costs as a percentage of revenue were among the lowest in the
industry for the 1997 fiscal year and the first quarter of 1998.
Timely Introduction of New Products. Maxtor's restructured manufacturing
and product development processes, as well as its rationalized product and
technology roadmap, enabled the Company to complete one of the fastest
transitions in the industry from HDDs utilizing thin-film head technology to
100% use of MR head technology by the end of the fourth quarter of 1997. With
its DiamondMax 2160, the Company demonstrated significantly improved
time-to-volume manufacturing in the fourth quarter of 1997, by producing 1.4
million units of this product during its first full quarter of production. In
the first quarter of 1998, the Company established itself as a time-to-market
entry leader with a 2.8 GB per disk HDD, the DiamondMax 2880, which is the
Company's fourth generation MR product. These improvements, in turn, enabled the
Company to increase its units shipped per quarter from 1.3 million units during
the first quarter of 1997 to 3.5 million units in first quarter of 1998, and
increase its share of the desktop HDD market in terms of units shipped from 5.6%
to 13.4% for the same periods.
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Customer/Channel Mix. Maxtor's new focus on leading PC OEMs led to
significant improvements in its customer/channel mix. For example, Maxtor's
revenue from shipments to Compaq, Dell, and IBM have increased from
approximately 6.5% to 51.8% of the Company's total revenue over the 24 month
period ended March 28, 1998. Maxtor also became a leading supplier to desktop
HDDs to Dell in less than 6 months from May 1997 and was a leading provider in
terms of desktop HDDs shipped to the domestic retail channel during 1997.
Cumulatively, these changes have resulted in significantly improved financial
results. The Company increased revenues by 122.5%, from $247.0 million to $549.6
million for the first fiscal quarters of 1997 and 1998, respectively, and
improved gross margins (losses) from (2.9)% to 11.3% for the same periods.
INDUSTRY BACKGROUND
The Desktop HDD Market. According to IDC, the desktop PC market is the
largest segment of the worldwide PC market, accounting for approximately 80% of
global PC shipments in 1997. As a result, desktop PCs were the leading source of
demand for HDDs, accounting for more than 75% of all HDD units shipped worldwide
in 1997, according to IDC. The demand for desktop PCs and, therefore, desktop PC
HDDs, continues to grow in part due to: (i) continued improvements in personal
computing price/performance tradeoffs including the emergence of the sub-$1000
PC; (ii) the rapid accumulation of data resulting from the digitization of
information previously stored in paper form; (iii) larger file sizes created by
multimedia-intensive applications associated with Windows-based user interfaces;
(iv) the exchange of increasing volumes of data among users across the Internet
and intranets with the proliferation of collaborative computing; and (v)
increased demand for PC upgrades as a result of Year 2000 compliance efforts.
Future demand growth also may be driven by new and emerging HDD markets. In May
1998, IDC forecasted that the worldwide desktop PC segment of the HDD market
would grow from approximately 100 million units in 1997 to 185 million units in
2001, reflecting a compound annual growth rate of 16.6%.
Hard Drive Technology. The basic operation of an HDD has not changed
materially since its introduction in the 1950s. To improve the performance of
HDDs, HDD manufacturers have concentrated their efforts on optimizing the
performance of the various components of the HDD.
The main components of the HDD are the head disk assembly ("HDA") and the
PCB. The HDA includes the head, media (disks), head positioning mechanism
(actuator) and spin motor. These components are contained in a hard base plate
protective package in a contamination-free environment. The PCB includes custom
integrated circuits, an interface connector to the host computer and a power
connector.
The HDA is comprised of one or more disks positioned around a spindle hub
that rotates the disks by a spin motor. Disks are made of a smooth substrate to
which a thin coating of magnetic materials is applied. Each disk has a head
suspended directly above it, which can read data from or write data to the
spinning disk. The sensor element of the head, also known as the slider, is
getting progressively smaller, resulting in reduced material costs.
The integrated circuits on the PCB typically include a drive interface and
a controller. The drive interface receives instructions from the computer, while
the controller directs the flow of data to or from the disks, and controls the
heads. The location of data on each disk is logically maintained in tracks,
divided into sectors. The computer sends instructions to read from or write data
to the disks based on track and sector locations. Industry standard interfaces
are utilized to allow the disk drive to communicate with the computer.
A key performance metric in the HDD industry is "areal density," which is
the measure of stored bits per square inch on the recording surface of a disk.
An increase in areal density allows an HDD provider to decrease the price per
megabyte stored by increasing overall storage capacity per disk, thus reducing
product costs through reduced component requirements. During 1996 and 1997,
certain HDD providers began transitioning to MR heads. Prior to this transition,
most HDDs utilized thin-film inductive recording heads. MR heads have discrete
read and write structures which provide more signal than the older thin-film
inductive heads. This results in significantly higher areal densities which thus
increases storage capacity per disk, as well as improves manufacturing margin
and product reliability. HDD providers are evaluating or implementing a number
of technological innovations designed to increase HDD performance and reduce
product costs, including attempting to simplify the electronic architecture by
combining the traditional servo-control
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functions of the DSP-based electronic architecture and the error recovery and
interface management functions of traditional HDD microprocessors on a single
integrated circuit. Moreover, to consistently achieve timely introduction and
rapid volume production of new products, some HDD providers are striving to
simplify their product design processes by focusing on creating extendible core
technology platforms which utilize common firmware and mechanical designs and
re-use of manufacturing tooling and ASICs across various product generations and
product lines.
HDD Market Challenges. PC OEMs which compete in a market that is
consolidating market share among the top ten PC OEMs, accounted for greater than
50% of the PC units shipped during 1997 and the first quarter of 1998. These PC
OEMs use the quality, storage capacity and performance characteristics of HDDs
to select their HDD providers. PC OEMs typically seek to qualify three or four
providers for a given HDD product generation. To qualify consistently with PC
OEMs and thus succeed in the desktop HDD industry an HDD provider must
consistently execute on its product development and manufacturing processes in
order to be among the first-to-market entry and first-to-volume production at
leading storage capacity per disk with competitive prices. Failure to reach the
market on time or to deliver timely volume production usually results in
significantly decreased gross margins due to rapidly declining ASPs and dramatic
losses in market share. Successful achievement on the performance parameters,
however, is only part of the competitive equation. As PC OEMs seek to develop
successful business models, they also are requiring their HDD vendors to
maintain high levels of quality to enable low cost of ownership and adapt their
inventory management models to be compatible with the emerging build-to-order
business model in the PC industry. See "Risk Factors -- Risks of Failed
Execution; Changing Customer Business Models."
MAXTOR'S SOLUTION
Maxtor has established itself as a leading provider of high quality, high
performance HDDs to major desktop PC OEMs, distributors and retailers. The
Company's management team has extensive HDD industry experience across all
functional areas. As a consequence, Maxtor has been able to define and implement
the key business processes necessary to fulfill the needs of its customers.
These processes focus on the efficient, timely and cost-effective integration of
leading-edge technology to create highly manufacturable HDDs. Moreover, the
Company's senior management team rigorously monitors these processes in an
effort to ensure consistent execution and prompt response to customer demands.
Maxtor intends to strengthen its leadership position in the desktop HDD industry
by consistently executing these fundamental business processes.
MAXTOR'S STRATEGY
Maxtor seeks to be the dominant provider of HDDs to leading PC OEMs,
distributors and retailers. Maxtor's strategy to achieve this goal includes the
following elements:
Effectively Integrate New Technology. In 1996, Maxtor overhauled its
research and development process by augmenting its traditional product
development teams with a new advanced technology group. The advanced technology
group's purpose is to continually monitor and evaluate advancements in HDD
technology for possible integration into the Company's future products. It also
works closely with Maxtor's product development teams and strategic component
vendors to: (i) obtain early access to the latest HDD component technology; (ii)
allow for flexibility in choosing state-of-the-art components; and (iii) ensure
viability of new product technologies and components prior to product design.
Through this process, the Company intends to continue to integrate new
technologies into its existing core technology platform and to strengthen its
ability to introduce high quality, highly manufacturable, high performance HDD
products with industry leading time-to-volume production on a consistent basis.
As a result of this process, Maxtor was able to complete one of the fastest
transitions to 100% MR head HDDs in the industry by the end of 1997.
Leverage Design Excellence. Maxtor's product development methodology
reduces risks associated with design changes by focusing on common firmware and
mechanical designs, and re-use of manufacturing tooling and ASICs. Through this
process, the Company has created a technology platform which is used as the
common core of each of its current HDD products and which the Company believes
is extendible into products for new and emerging HDD market opportunities. To
reduce the overall cost of ownership of its
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HDD products, Maxtor utilizes a robust mechanical architecture designed to
reduce defects that result from customer mishandling during installation. The
Company also works closely with leading component suppliers in an effort to
ensure that adequate tolerances are designed into its products to achieve high
manufacturing yields and product quality. By utilizing this product development
methodology, Maxtor has successfully introduced and achieved timely volume
production of four generations of MR HDDs in less than 18 months.
Capitalize on Flexible Manufacturing. The Company's Singapore manufacturing
facility utilizes a flexible cell-based process that enables the Company to: (i)
dedicate manufacturing cells to particular customers, thereby allowing the
Company to identify, isolate and remedy manufacturing defects quickly, resulting
in improved product quality, faster time-to-volume production and improved
overall customer satisfaction; (ii) simultaneously manufacture multiple product
configurations; (iii) quickly reconfigure the facility to respond to customer
change requests and changes in product and customer mix; (iv) effectively adapt
its inventory management model to the emerging build-to-order business model
employed by certain of its PC OEM customers; and (v) add incremental capacity as
needed at a relatively low cost. This flexible cell-based process, when coupled
with the Company's product design methodology, has enabled Maxtor to
significantly improve time-to-volume production. For example, during the first
full quarter of production the Company manufactured 1.4 million units of its
DiamondMax 2160.
Increase Market Share With Leading PC OEMs. Maxtor intends to continue to
achieve leading time-to-volume production of high quality, high performance HDDs
to capture additional market share with leading PC OEMs. Maxtor's quarterly
share of the desktop HDD market in terms of units shipped increased from 5.6% in
the first quarter of 1997 to 13.4% in the first quarter of 1998. Shipments to
Compaq, Dell and IBM also accounted for 6.5% of the Company's total revenue in
the quarter ended June 29, 1996 and increased to 51.8% in the quarter ended
March 28, 1998.
Maintain Customer Satisfaction. Maxtor believes it distinguishes itself
from its competitors by focusing on ease of doing business and overall customer
satisfaction. For example, the Company's "No Quibble" service program has been
well received by its customers. Maxtor also has begun to place significant
attention on total supply chain management to align its business model with the
evolving build-to-order manufacturing business model of certain PC OEMs. The
Company utilizes its flexible, cell-based manufacturing process coupled with a
just-in-time inventory model to rapidly respond to the changing needs of its key
desktop PC OEM customers. To further automate and improve the efficiency of its
total supply chain management, the Company is in the process of installing new
enterprise resource planning and related software.
Broaden Product Portfolio. To capture higher margin opportunities and meet
the needs of its PC OEM customers, the Company intends to leverage its existing
technology platform and product development methodology to develop HDD products
for the low end of the enterprise market, and the high performance desktop and
sub-$1000 desktop PC market segments. Maxtor also intends to explore
opportunities in a number of other emerging HDD markets.
PRODUCT DEVELOPMENT/TECHNOLOGY
One of the most important changes undertaken as part of the Maxtor
turnaround was the restructuring of the Company's product development process to
separate the enabling technology development phase from the product design
phase. In early 1996, Maxtor suffered from poor product quality and performance
and products that were late to market. This contrasts sharply with 1998 where
Maxtor now enjoys strong customer relationships based on excellent product
quality, time-to-volume production leadership and industry-leading performance.
Enabling Technology Development Phase. The advanced technology group is
responsible for the enabling technology development phase, including: (i)
working closely with the Company's product design teams and strategic component
suppliers to create a menu of state-of-the-art technologies to be used in the
Company's future products; (ii) developing early-prototypes to ascertain the
stability and manufacturability of the Company's planned products; and (iii)
analyzing the latest head, disk, channel, motor and ASIC technologies and
designs to broaden and strengthen the Company's technology platform. This group
also focuses on leveraging the Company's current proven technology platform by
re-using as much electronic and
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mechanical technology as possible in each successive product generation. In an
effort to deliver the highest product quality possible, the advanced technology
group begins its review of emerging technologies as early as possible, normally
18 months before such technologies might be included in the Company's products.
For example, Maxtor's advanced technology group currently is evaluating GMR
technology and pico sliders from a variety of head suppliers for inclusion in
future Maxtor products. GMR technology is designed to significantly improve
amplitude sensitivity and provide the basis for significant future increases in
areal density and improved manufacturing margin, which in turn will result in
increased drive capacity and reliability. Pico sliders are smaller in size than
today's nano sliders, and are designed to provide improved mechanical compliance
and tribological performance at lower costs.
Product Design Phase. The creation of the advanced technology group as part
of the Maxtor turnaround freed the Company's existing product design group from
the responsibility of assessing the viability of new and emerging technologies
and allowed it to concentrate on improving product performance, robustness,
manufacturability, quality and materials costs. The product design group also is
responsible, in part, for executing Maxtor's new product introduction process.
This process is a highly disciplined review procedure designed to ensure new
product designs meet clearly specified criteria in terms of yield, scrap,
quality, productivity, and production ramp rates prior to release into volume
production. This process has enabled the Company to improve time-to-volume
manufacturing dramatically, yielding 1.4 million units of the DiamondMax 2160,
during the first full quarter of production. See "Risk Factors -- Rapid
Technological Change and Product Development."
PRODUCTS
Maxtor currently provides HDDs exclusively for the desktop PC market. The
Maxtor DiamondMax product family consists of 3.5-inch form factor HDDs with
storage capacities ranging from approximately 2.1 GB to 11.5 GB. These products
have a number of features including high speed interfaces for greater data
throughput, a robust mechanical design for improved reliability, MR head
technology and a DSP-based electronic architecture that, when combined, provides
industry-leading benchmark performance. The DiamondMax 2880, introduced in
February 1998, is Maxtor's fourth generation MR head drive, the fifth drive
utilizing the Company's DSP-based electronic architecture, and the seventh drive
based on the Company's Formula 4 mechanical architecture. See "Risk
Factors -- Rapid Technological Change and Product Development."
The table below sets forth key performance metrics and key customers for
the Company's four generations of MR products, introduced since December of
1996.
<TABLE>
<CAPTION>
DIAMONDMAX 1280 DIAMONDMAX 1750 DIAMONDMAX 2160* DIAMONDMAX 2880*
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Maximum Capacity (GB)...... 5.12 7.00 8.40 11.52
Capacity per Disk (GB)..... 1.28 1.75 2.16 2.88
First Shipment Date........ Dec. 1996 June 1997 Sept. 1997 March 1998
Key Customers.............. IBM Compaq, Dell Compaq, Dell and Dell
and IBM IBM
</TABLE>
- ---------------
* Currently in volume production.
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Maxtor's DiamondMax product family has won a number of recent editorial and
industry awards including:
<TABLE>
<S> <C>
WINDOWS Magazine Win 100 for DiamondMax 2160 -- June 1998
WINDOWS Magazine Win 100 for DiamondMax 1750 -- June 1998
VARBusiness 1998 Product Report Award -- May 1998
Computer Reseller News CRN Test Center Recommended for DiamondMax 2880 -- April
1998
BYTE Magazine Best Overall: Server Class Drive - DiamondMax
2160 -- February 1998
BYTE Magazine Best Overall: Desktop Drive -- DiamondMax 1280 -- February
1998
CompUSA 1997 Accessories Vendor of the Year
WINDOWS Magazine Win 100 for DiamondMax 1280 -- July 1997
Home PC Reviewer's Choice DiamondMax 1280 -- May 1997
WINDOWS Magazine Recommended List DiamondMax 1280 -- April 1997
</TABLE>
MANUFACTURING/QUALITY
To be competitive, Maxtor must manufacture high quality, highly
manufacturable, high performance HDDs with industry leading time-to-volume
production at competitive costs. The Company's HDD manufacturing operations
consist primarily of the final assembly of high-level subassemblies built to
Company specifications and testing of completed products.
Manufacturing. Pilot production of the Company's products, as well as cost
reduction, quality and product improvement engineering on current products, are
conducted at the Company's Longmont, Colorado facility. The Company manufactures
its HDDs in volume at its Singapore facility utilizing a flexible, cell-based
process. Currently, the Singapore facility consists of four modular production
units ("MPU"), each of which has 18 modular work cells ("MWC"). Each MWC
essentially is a mini-serial production line consisting of all of the tooling
and test equipment necessary to build and test an HDD. Each MPU is responsible
for managing the supply of the components and other parts required by its MWCs.
The Company is in the process of adding a fifth MPU which will increase overall
manufacturing capacity at the facility from approximately 16 million to
approximately 20 million units per year. There is sufficient additional space at
the Singapore facility for a sixth MPU which would increase overall capacity at
that facility to approximately 25 million units per year. Maxtor has coupled its
cell-based manufacturing approach with a sophisticated factory information
system that collects data from each MWC on various productivity and quality
metrics.
The Company has been investing significant amounts of capital to increase
the capacity and enhance the productivity of its Singapore manufacturing
facility. In the twelve month period ended March 30, 1996, the nine month period
ended December 28, 1996 and the twelve month period ended December 27, 1997, the
Company made capital expenditures, net of disposals, of $72.3 million, $53.4
million and $81.9 million, respectively. During 1998, capital expenditures are
expected to be approximately $100.0 million, to be used principally for adding
manufacturing capacity and implementing the Company's SAP program and other
related information technology systems.
The Company's volume manufacturing operations currently are based in a
single facility in Singapore.
The Company anticipates that it may need additional manufacturing capacity
as early as the beginning of the year 2000. In anticipation of that need, in the
summer of 1997, HEI began construction of the Dalian Facility, a 450,000 square
foot manufacturing facility in Dalian, China for the purpose of making
additional manufacturing capacity available to Maxtor. The Dalian Facility is
only partially completed and construction is continuing at a reduced pace. HEI
has expended approximately $23.0 million on the construction to date. An
additional estimated $60.0 million investment will be required to complete the
Dalian Facility to the point where manufacturing lines can be installed, and an
estimated additional $25.0 million of machinery and equipment will be required
to make the facility ready for its initial phase of operations. The Company and
HEI have agreed to discuss the terms under which the Dalian Facility will be
completed and by which the Company would either buy or lease the Dalian Facility
from HEI, and the Company intends to utilize the Dalian Facility if acceptable
terms can be agreed upon. There can be no assurance that the Company will be
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able to successfully negotiate any such agreement with HEI or that the Dalian
Facility will be completed by the time Maxtor requires additional capacity. The
terms of any agreement with regard to the Dalian Facility is subject to the
approval of the Affiliated Transactions Committee of the Board. Moreover, any
such agreement would be conditioned on the transfer of HEI's business license
for the Dalian Facility and the transfer of HEI's tax holiday status and other
regulatory concessions in Dalian to the Company. If the Company is unable to
reach agreement with HEI on acceptable terms or obtain the tax holiday status
and other regulatory concessions and the applicable business license, the
Company may need to acquire additional manufacturing capacity at other sites. In
addition to the Dalian Facility, the Company currently is investigating other
manufacturing facilities within Asia. Although the Company believes that
alternative manufacturing facilities will be available, a failure by the Company
to obtain, on a timely basis, a facility or facilities which allow the Company
to meet its customers' demands will limit the Company's growth and could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Need for Additional Capital,"
"-- Single Manufacturing Facility; Future Need for Additional Capacity,"
"-- Dependance on International Operation; Risks from International Sales,"
"Relationship between the Company and Hyundai," "Management Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," and "Certain Transactions."
In addition to risks typically associated with the concentration of vital
operations, foreign manufacturing is subject to additional risks, including
changes in governmental policies, currency fluctuations, political instability,
transportation delays and interruptions, and the imposition of tariffs and
export controls. Any disruption of the Company's manufacturing operations could
have a material adverse effect on its business, financial condition, results of
operations and customer relations. See "-- Facilities," "Risk Factors --
Dependence on International Operations; Risks from International Sales," and
"Relationship between the Company and Hyundai."
Quality. Consistent with its goal to establish Maxtor as a leader in
product quality and overall customer satisfaction, Maxtor has implemented a
corporate-wide quality program which focuses on (i) robustness of design and
improved design tolerances; (ii) quality of incoming components and factory
process control; and (iii) customer feedback, failure analysis and timely
response. In addition, Maxtor's quality, materials, enabling technology and
product development groups work closely with leading component vendors in an
effort to ensure sufficient tolerances are designed into the Company's HDDs to
achieve high manufacturing yields and product quality. Maxtor's Singapore
facility also is ISO 9002 certified. Finally, Company executives meet regularly
with customers to exchange product quality information to facilitate rapid
analysis of customer failures and timely implementation of corrective actions.
The Company currently warrants its products against defects in parts or
labor for a period of three years from the date of shipment. Products are
generally repaired or refurbished by Company subcontractors. 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.
Additionally, the Company provides customer service and technical support for
end-users, as well as access to important information and software via its Web
site.
MATERIALS AND SUPPLIES
The Company has developed and continues to develop close, strategic
relationships with leading suppliers of many of the key components of its HDD
products. These relationships enable the Company to actively manage its supply
chain to improve flexibility in choosing state-of-the-art components and to
reduce component, inventory and overall product costs. In addition, Maxtor's
strategic component suppliers work closely with the Company's advanced
technology group, enabling the Company to gain early access to leading-edge HDD
technology and to improve the overall efficiency of the Company's product design
process.
The Company relies on a limited number of leading suppliers for the
components used in the manufacturing of its products, including MR heads and
head stack assemblies, media, custom integrated circuits ("IC"), read channel
ICs, PCBs and motor/baseplate assemblies. In general, the Company seeks to have
at least two or three suppliers for each of its component requirements. For
example, the Company
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currently purchases MR heads from Alps Electric Co., Ltd, Headway Technologies,
Inc., IBM, Read-Rite Corporation and TDK Corporation, and media from HMT
Technology Corporation, Komag, Incorporated and MMC. Custom ASICs, including the
Company's DSP controller chips, and channels, however, currently are
sole-sourced from TI and Lucent, respectively. Because of their custom nature,
these products require significant design-in periods and long-lead times. There
can be no assurance that, in the event of any disruption or delay in the supply
of these custom ASICs or any other components, the Company could locate an
alternative source of supply on a timely-basis on acceptable terms, if at all.
The Company outsources a majority of its PCB assembly to IMS, an affiliate of
the Company.
Some of the components required by the Company may periodically be in short
supply, and the Company has, on occasion, experienced temporary delays or
increased costs in obtaining components. As a result, the Company must allow for
significant lead times when procuring certain components. In addition,
cancellation by the Company of orders for components due to cut-backs in
production precipitated by market oversupply, reduced demand, transition to new
products or technologies or otherwise can result in payment by the Company of
significant cancellation charges to suppliers. The Company orders the majority
of its components on a purchase order basis and only has limited long-term
volume purchase agreements with certain existing suppliers. Any inability of the
Company to obtain sufficient quantities of components, or to develop in a timely
manner alternative sources of component supply if and as required in the future,
could adversely affect the Company's ability to manufacture its products and
deliver them on a timely basis, which could have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors -- Control by and Dependence on Hyundai," "-- Dependence on Suppliers of
Components and Sub-Assemblies," "-- Dependence on International Operations;
Risks from International Sales," "Relationship Between the Company and Hyundai"
and "Certain Transactions."
CUSTOMERS AND SALES CHANNELS
From 1986 to 1997, chronic performance and quality issues, as well as being
late to the market, had adversely impacted Maxtor's ability to win business with
leading PC OEMs. As a result, the Company was heavily dependent on sales to a
large number of regional distributors which limited the Company's ability to
forecast period shipments and shifted the Company's product mix toward lower
performance, lower margin products. Recognizing that the majority of the growth
in shipments in the PC market was being captured by a limited number of PC OEMs,
the Company rationalized its sales channels and focused its sales and marketing
efforts on becoming a significant provider of HDDs to leading PC OEMs, including
Compaq, Dell and IBM, and a limited number of leading distributors and
retailers. By emphasizing overall customer satisfaction, product quality and
performance and time-to-volume production, the Company believes that it has
established a strong customer base.
The Company anticipates that a relatively small number of customers will
continue to account for a significant portion of its revenue for the foreseeable
future, and that the proportion of its revenue derived from such customers may
continue to increase in the future. The ability of the Company to maintain
strong relationships with its principal customers, including in particular its
OEM customers, is essential to the ongoing success and profitability of the
Company. Although the Company believes its relationships with key customers
generally are good, in order to maintain its customer relationships,
particularly with PC OEMs, the Company must be among the first to volume
production with competitive products. The concentration of sales in a relatively
small number of major customers represents a business risk that loss of one or
more accounts, or a decrease in the volume of products sold to such accounts,
and could have a material adverse effect on the Company's business, financial
condition and results of operations.
Original Equipment Manufacturers. Shipments to Compaq, Dell and IBM
accounted for 6.5% of the Company's total revenue in the quarter ended June 29,
1996 and increased to 51.8% in the quarter ended March 28, 1998. The Company
believes that its success depends on its ability to maintain and further develop
strong OEM customer relationships and to provide products that fit the needs of
the PC OEM channel. These PC OEMs use the quality, storage capacity and
performance characteristics of HDDs to select their HDD providers. PC OEMs
typically seek to qualify three or four providers for a given HDD product
generation. To qualify consistently with PC OEMs and thus succeed in the desktop
HDD industry, an HDD provider must
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consistently execute on its product development and manufacturing processes in
order to be among the first-to-market entry and first-to-volume production at
leading storage capacity per disk with competitive prices. Once a PC OEM has
chosen its qualified HDD vendors for a given HDD product, it generally will
purchase HDDs from those vendors for the life of that HDD product. If a
qualification opportunity is missed, the Company may not have another
opportunity to do business with that PC OEM until the next generation of the
Company's products is introduced. The effect of missing a product qualification
opportunity is magnified by the limited number of high volume PC OEMs, most of
which continue to consolidate their share of the PC market. The Company
generally negotiates pricing, volume discounts, order lead times, product
support requirements and other terms and conditions prior to receiving a PC OEMs
first purchase order. Shipments are not scheduled until purchase orders are
received and cancellation of purchase orders may occur without significant
penalty. The Company's major PC OEM customers include Compaq, Dell and IBM. See
"Risk Factors -- Risks of Failed Execution; changing Customer Business models."
Distributors. Maxtor uses a select group of distributors to sell its
products cost-effectively to the large number of geographically dispersed
customers which tend to hold market shares of less than 1% of the overall
desktop PC market, including value-added resellers, dealers, system integrators
and small OEMs. Distributors accounted for 39% of revenue for the fiscal year
ended March 30, 1996, 48% of revenue for the nine month period ended December
28, 1996 and 36% of revenue for the year ended December 27, 1997 and 24.2% of
revenue for the quarter ended March 28, 1998. Distributors generally enter into
non-exclusive agreements with the Company for purchase and redistribution of
product on a quick turnover basis. Purchase orders are placed and revised on a
weekly basis. Maxtor grants its distributors price protection and limited rights
to return product on a rotation basis. The Company's major distributors include
Ingram Micro, Inc., Karma International SA, and SED.
Retailers. To increase awareness of the Maxtor brand name and benefit from
the typically higher gross margins of the retail sales channel, the Company
sells its retail-packaged products directly to major retailers such as computer
superstores, warehouse clubs and computer electronics stores and authorized
sales through distributors to smaller retailers. Retailers accounted for 5% of
revenue for the fiscal year ended March 30, 1996; 8% of revenue for the nine
month period ended December 28, 1996; 9% of revenue for the year ended December
27, 1997; and 10% of revenue for the quarter ended March 28, 1998. Maxtor's
current retail customer base is in the United States and Canada, however, the
Company has begun efforts to establish a retail channel presence in the emerging
retail markets in Europe and Asia. The Company believes the retail channel
complements its other sales channels. Retailers supply to the aftermarket
"upgrade" sector in which end-users purchase and install products to upgrade
their computers. The Company's major retail customers include Best Buy Co.,
Inc., CompUSA Inc., and Staples, Inc. See "Risk Factors -- Customer
Concentration."
SALES AND MARKETING
The Company employs approximately 206 individuals that market and sell the
Company's products to leading PC OEMs, distributors and retailers. Sales offices
are located throughout the U.S., and in Australia, France, Germany, Great
Britain, Hong Kong, Japan, Korea, Singapore, and Taiwan. Maxtor has formed
multi-disciplined, dedicated account and channel teams focused on each of its
current and target strategic PC OEM, distributor and retail accounts. These
teams generally are comprised of representatives from the Company's sales,
marketing, engineering and quality organizations. The Company's senior
management also takes an active role in the Company's sales efforts. Dedicated
field sales and technical support personnel are located in close proximity to
the manufacturing facilities of each of the Company's PC OEM customers.
The Company's marketing and public relations functions are performed both
internally and through outside firms. Public relations, direct marketing,
worldwide packaging and marketing materials are targeted to various end-user
segments. Maxtor utilizes both consumer media and trade publications. The
Company has programs under which qualifying resellers are reimbursed for certain
advertising expenditures. Maxtor has also invested in direct marketing and
customer satisfaction programs. The Company maintains ongoing contact with end
users through primary and secondary market research, focus groups, product
registrations and
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technical support databases. See "Risk Factors -- Risks of Failed Execution;
Changing Customer Business Models."
BACKLOG
The Company generally sells standard products according to standard
agreements or purchase order terms. Delivery dates are specified by purchase
orders. Such orders may be subject to change, cancellation or rescheduling by
the customer without significant penalties. The quantity actually purchased and
shipment schedules are frequently revised to reflect changes in the customer's
needs. In addition, orders for the Company's products are filled for several
large customers from just-in-time inventory warehouses, whereby orders are not
placed ahead of time on the Company's order entry backlog system. Instead, the
Company receives a periodic forecast of requirements from the customer. Upon
shipment from the just-in-time warehouse, the customer is invoiced. In light of
these factors, backlog reporting as of any particular date may not be indicative
of the Company's actual revenue for any succeeding period, and, therefore, is
not necessarily an accurate predictor of the Company's future revenue.
COMPETITION
Although the Company's share of the desktop PC segment of the HDD market
has increased steadily since the first quarter of 1997, this market segment and
the HDD market in general are intensely competitive and characterized by rapid
technological change and rates of product and technology obsolescence, dramatic
shifts in market share and significant erosion of ASPs, and as such there can be
no assurance that the Company will be able to improve on, or prevent the erosion
of, the Company's present share of the desktop PC HDD market.
The Company presently competes primarily with manufacturers of 3.5-inch
HDDs, including Fujitsu, Quantum, Samsung, Seagate and Western Digital, most of
which have a larger share of the desktop HDD market than the Company. Other
companies, such as IBM, will be significant competitors in one or more of the
markets into which the Company plans to expand its product portfolio, and could
be significant competitors of the Company in its current market should they
choose to commit significant resources to providing HDDs for the desktop HDD
market.
Many of the Company's competitors offer a broader array of product lines
and have significantly greater financial, technical, manufacturing and marketing
resources than the Company. Unlike the Company, certain of the Company's
competitors manufacture a significant number of the components used in their
HDDs and thus may be able to achieve significant cost advantages over the
Company. Certain competitors have preferred vendor status with many of the
Company's customers, extensive marketing power and name recognition, and other
significant advantages over the Company. In addition, such competitors may
determine, for strategic reasons or otherwise, to consolidate, lower the prices
of their products or bundle their products with other products. The Company's
competitors have established and may in the future establish financial or
strategic relationships among themselves or with existing or potential
customers, resellers or other third parties. New competitors or alliances could
emerge and rapidly acquire significant market share.
The Company believes that important competitive factors in the HDD market
are quality, storage capacity, performance, price, time-to-market entry,
time-to-volume production, PC OEM product qualifications, reliability, and
technical service and support. The failure of the Company to develop and market
products that compete successfully with those of other suppliers in the HDD
market would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Highly Competitive
Industry."
INTELLECTUAL PROPERTY
The Company has been granted approximately 180 U.S. and foreign patents
related to disk drive products and technologies, and has additional patent
applications pending in the United States and certain foreign countries. The
Company has patent protection on certain aspects of its technology and also
relies on trade secret, copyright, trademark laws, as well as contractual
provisions to protect its proprietary rights. There can
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be no assurance that the Company's protective measures will be adequate to
protect the Company's proprietary rights; that others, including competitors
with substantially greater resources, have not developed or will not
independently develop or otherwise acquire equivalent or superior technology; or
that the Company will not be required to obtain licenses requiring it to pay
royalties to the extent that the Company's products may use the intellectual
property of others, including, without limitation, Company products that may
also be subject to patents owned or licensed by the Company. There can be no
assurance that any patents will be issued pursuant to the Company's current or
future patent applications, or that patents issued pursuant to such applications
or any patents the Company owns or has licenses to use will not be invalidated,
circumvented or challenged. Moreover, there can be no assurance that the rights
granted under any such patents will provide competitive advantages to the
Company or be adequate to safeguard and maintain the Company's proprietary
rights. Litigation may be necessary to enforce patents issued or licensed to the
Company, to protect trade secrets or know-how owned by the Company or to
determine the enforceability, scope and validity of the proprietary rights of
the Company or others. The Company could incur substantial costs in seeking
enforcement of its issued or licensed patents against infringement or the
unauthorized use of its trade secrets and proprietary know-how by others or in
defending itself against claims of infringement by others, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the laws of certain countries in which the
Company's products are manufactured and sold, including various countries in
Asia, may not protect the Company's products and intellectual property rights to
the same extent as the laws of the United States, and there can be no assurance
that such laws will be enforced in an effective manner. The failure of the
Company to enforce and protect its intellectual property rights could have a
material adverse effect on the Company's business, financial condition and
results of operations.
As a subsidiary of HEA, the Company had the benefit of certain third party
intellectual property rights on terms that may have been more favorable than
would have been available to the Company if it were not a subsidiary of HEA.
There can be no assurance that the Company will be able to obtain similar rights
on terms as favorable as it could be obtained as a subsidiary of HEA. See
"Relationship Between the Company and Hyundai."
The HDD industry, like many technology-based industries, is characterized
by frequent claims and litigation involving patent and other intellectual
property rights. The Company, its component suppliers and certain users of the
Company's products have from time to time received, and may in the future
receive, communications from third parties asserting patent infringement against
the Company, its component suppliers or its customers which may relate to
certain of the Company's products. If the Company is notified of such a claim,
it may have to (i) obtain appropriate licenses or cross-licenses or (ii) modify
its existing technology or design non-infringing technology. There can be no
assurance that the Company can obtain adequate licenses or cross-licenses on
favorable terms or that it could modify its existing technology or design
non-infringing technology and, in either case, the failure to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company to date has not been a party to any
material intellectual property litigation, certain of its competitors have been
sued on patents having claims related to HDDs and there can be no assurance that
third parties will not initiate infringement actions against the Company. There
can be no assurance that the Company could defend itself against such claims. If
there is an adverse ruling against the Company in an infringement lawsuit, it
could result in the issuance of an injunction against the Company or its
products and/or the payment of monetary damages equal to a reasonable royalty or
recovered lost profits or, in the case of a finding of a willful infringement,
treble damages. Accordingly, such an adverse ruling could have a material
adverse effect on the Company's business, financial condition or results of
operations.
Similar to certain other providers of HDDs, the Company has received
correspondence from Papst-Motoren GmbH and Papst Licensing claiming infringement
of at least 13 HDD motor patents. The patents relate to motors that the Company
purchases from motor vendors and the use of such motors in HDDs. While the
Company believes that it has meritorious defenses against a lawsuit if filed,
the results of litigation are inherently uncertain and there can be no assurance
that Papst will not assert other infringement claims relating to current
patents, pending patent applications and future patents or patent applications,
will not initiate a lawsuit against the Company or that the Company will be able
to successfully defend itself against such a
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lawsuit. A favorable outcome for Papst in such a lawsuit could result in the
issuance of an injunction against the Company or its products and/or the payment
of monetary damages equal to a reasonable royalty or recovered lost profits or,
in the case of a finding of a willful infringement, treble damages and could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors -- Limited Protection of
Intellectual Property; Risk of Third Party Claims of Infringement,"
"-- Dependence on International Operations; Risks of International Sales" and
"Relationship between the Company and Hyundai -- Certain IP Indemnification and
Patent Cross License between HEI and the Company."
EMPLOYEES
As part of the Maxtor turnaround, the Company reduced its personnel from
9,330 in March 1996 to 4,330 in October 1996. Since that time, the Company has
added significant personnel to its research and development, sales and marketing
and production staffs. As of March 28, 1998, the Company had 5,660 employees
worldwide, of which 714 were engaged in engineering, research and development;
206 in marketing, sales, and customer support; 4,389 in manufacturing; and 351
in general management and administration. The Company has 4,389 employees at its
manufacturing facilities in Singapore and 89 employees at its foreign sales
offices. 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. See
"Risk Factors -- Dependence on and Integration of Key Personnel; Hiring
Additional Skilled Personnel."
FACILITIES
The Company's administrative offices and advanced technology operations are
located at a 214,691 square foot facility in Milpitas, California. The Company
also maintains 332,507 square feet of engineering and pilot production
facilities in Longmont, Colorado. All the Company's domestic facilities are
leased.
The Company's volume manufacturing facilities are located in Singapore. The
Company owns a 384,000 square-foot building in Singapore, situated on land
leased through the year 2016 (subject to an option to renew for an additional 30
years). The Company anticipates that it may need additional manufacturing
capacity as early as the beginning of the year 2000; however, a sustained
increase or decline in the demand for the Company's products may affect such
timing. The Company is currently investigating additional and alternative sites
for its manufacturing operations, including the Dalian Facility. There is no
assurance that the Company will be able to locate geographically desirable
facilities, which are situated near an available pool of skilled labor, on a
cost effective basis, if at all. A failure by the Company to obtain, on a timely
basis, a facility or facilities which allow the Company to meet its customers'
demands will limit the Company's growth and could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company leases a 28,500 square foot facility in Ireland to house its European
drive exchange facility. All the Company's sales offices, located in the United
States, Europe and Asia Pacific, are leased. The Company intends to review
constantly its facilities requirements as part of its growth strategy and will
add additional facility space as the need arises.
The Company is experiencing space constraints at its Longmont, Colorado
facility and is negotiating to obtain a lease on a new facility in the Longmont
area. There can be no assurance that the Company will be able to obtain a lease
for a facility that can accommodate its needs for additional space or that, if
obtained, such lease will have terms at least as favorable as the terms
governing its current lease. See "-- Manufacturing Quality" and "Risk
Factors -- Single Manufacturing Facility; Future Need for Additional Capacity."
LEGAL PROCEEDINGS
The Company currently is involved in a dispute with StorMedia Incorporated,
which arises out of an agreement among the Company, StorMedia and HEI which
became effective on November 17, 1995. Pursuant to the StorMedia Agreement,
StorMedia agreed to supply disk media to the Company. StorMedia's disk media did
not meet the Company's specifications and functional requirements as required by
the
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StorMedia Agreement and the Company ultimately terminated the StorMedia
Agreement. After a class action securities lawsuit was filed against StorMedia
by certain of its shareholders in September 1996 which alleged, in part, that
StorMedia failed to perform under the StorMedia Agreement, StorMedia sued HEI,
Mong Hun Chung (HEI's chairman), Dr. Chong Sup Park (HEA's President and the
individual and then President of the Company who signed the StorMedia Agreement
on behalf of the Company) and K.S. Yoo (the individual who signed the StorMedia
Agreement on behalf of HEI) in the U.S. District Court for the Northern District
of California. In the Federal Suit, StorMedia alleged that at the time HEI
entered into the StorMedia Agreement, it knew that it would not and could not
purchase the volume of products which it committed to purchase, and that failure
to do so caused damages to StorMedia in excess of $206 million.
In December 1996, the Company filed a complaint against StorMedia and
William Almon (StorMedia's Chairman and Chief Executive Officer) in a Colorado
state court seeking approximately $100 million in damages and alleging, among
other claims, breach of contract, breach of implied warranty of fitness and
fraud under the StorMedia Agreement. This proceeding was stayed pending
resolution of the Federal Suit. The Federal Suit was permanently dismissed early
in February 1998. On February 24, 1998, StorMedia filed a new complaint in Santa
Clara County Superior Court for the State of California for $206 million,
alleging fraud and deceit against the Original Defendants and negligent
misrepresentation against HEI and the Company. On May 18, 1998, the stay on the
Colorado Suit was lifted by the Colorado state court. The Company's motion to
dismiss, or in the alternative, stay the California Suit, is pending.
The Company believes that it has meritorious defenses against the claims
alleged by StorMedia and intends to defend itself vigorously. However, due to
the nature of the litigation and because the pending lawsuits are in the very
early pre-trial stages, the Company cannot determine the possible loss, if any,
that may ultimately be incurred either in the context of a trial or as a result
of a negotiated settlement. The litigation could result in significant diversion
of time by the Company's technical personnel, as well as substantial
expenditures for future legal fees. After consideration of the nature of the
claims and facts relating to the litigation, including the results of
preliminary discovery, the Company's management believes that the resolution of
this matter will not have a material adverse effect on the Company's business,
financial condition or results of operations. However, the results of these
proceedings, including any potential settlement, are uncertain and there can be
no assurance that they will not have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has been notified of certain other claims, including claims of
patent infringement. While the ultimate outcome of these claims and the claims
described above is not determinable, the Company does not believe that
resolution of these matters will have a material adverse effect on the Company's
business, financial condition or results of operations. No amounts related to
any claims or actions have been reserved in the Company's financial statements.
See "Risk Factors -- StorMedia; Legal Proceedings" and "-- Limited Protection of
Intellectual Property; Risk of Third Party Claims of Infringement."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of June 1, 1998 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Dr. Chong Sup Park(1)..... 50 Chairman of the Board
Michael R. Cannon(1)...... 45 President, Chief Executive Officer and Director
Charles F. Christ(2)(3)... 59 Director
Chang See Chung(2)........ 45 Director
Charles Hill(1)(3)(4)..... 62 Director
Y.H. Kim.................. 55 Director
Philip S. Paul(2)(3)(4)... 59 Director
Dr. Victor B. Jipson...... 45 Senior Vice President, Engineering
William F. Roach.......... 54 Senior Vice President, Worldwide Sales and Marketing
Paul J. Tufano............ 44 Vice President, Finance, and Chief Financial Officer
Glenn H. Stevens.......... 47 Vice President, General Counsel and Secretary
Phillip C. Duncan......... 47 Vice President, Human Resources
John T. Hagerman.......... 43 Vice President, Strategic Initiatives
K. K. Kim................. 46 Vice President, Business Development
Misha Rozenberg........... 36 Vice President, Quality
K. H. Teh................. 44 Vice President, Worldwide Manufacturing
David L. Beaver........... 44 Vice President, Materials
</TABLE>
- ---------------
(1) Member of the Nominating Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(4) Member of the Affiliated Transactions Committee
Dr. Chong Sup Park has been Chairman of the Board since May 1998 and
assumed the position of Chairman, President and Chief Executive Officer of HEA
in September 1996. Mr. Park has also been Chairman of MMC's Board of Directors
since January 1998. From September 1996 to May 1998, Dr. Park served as Vice
Chairman of the Board. Dr. Park previously served as the Company's President and
Chief Executive Officer from February 1995 until his appointment as Vice
Chairman. From 1993 until joining Maxtor in 1995, he was Chairman, President and
Chief Executive Officer of Axil Computer, Inc., a workstation computer
manufacturer and a Hyundai Business Group company, in Santa Clara, California.
He was formerly in various management positions with HEI, 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 HEA. He is currently a director of Symbios, Inc., an affiliate of the
Company which manufactures semiconductor and information storage products
("Symbios").
Michael R. Cannon has been President, Chief Executive Officer and Director
of the Company since July 1996. From 1993 until he joined Maxtor, Mr. Cannon
held several senior management positions with IBM's Storage Systems division,
including Vice President, Mobile and Desktop Business Unit; Vice President,
Product Design; and Vice President, Worldwide Operations. From 1991 to 1993, he
served as Senior Vice President of SyQuest, and prior to joining SyQuest, a disk
drive company, held the position of Vice President, Southeast Asia Operations,
with Imprimis Technology. He is currently a director of MMC, a wholly owned
subsidiary of HEA.
Charles F. Christ has been a member of the Board since August 1995. He has
been President, Chief Executive Officer and a director of Symbios since 1997.
From 1994 to 1997, Mr. Christ was Vice President and General Manager of the
Components Division of Digital Equipment Corporation. From 1989 to 1990,
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Mr. Christ was a Senior Partner with the management consulting group of Coopers
& Lybrand L.L.P. From 1986 to 1988, he was President and Chief Executive Officer
of Digital Sound Corporation, a telecommunications voice processing company.
Chang See Chung has been a member of the Board since May 1998. Mr. Chung
has also served as Senior Vice President of HEA since May 1998. From 1995 to
1998 he served as Vice President, Strategic Planning and Corporate Coordination
of Symbios. From 1976 to 1995, Mr. Chung held various management positions with
HEA, Hyundai Electronics Europe, HEI and HHI. Mr. Chung was previously the Chief
Financial Officer and Treasurer of HEA.
Charles Hill has been a member of the Board since March 1992. He has been a
Senior Research Fellow at the Hoover Institution since 1989. From 1983 to 1984
he served as Chief of Staff of the U.S. State Department and from 1982 to 1989
as Executive Assistant to former U.S. Secretary of State George P. Shultz. From
1992 to 1996, Mr. Hill was Special Consultant to the Secretary General of the
United Nations. Presently, he is Diplomat-in-Residence and Lecturer in
International Studies at Yale University.
Y.H. Kim has been President and representative Director of HEI since
September 1996. From 1989 to 1996, Mr. Kim was President and Chief Executive
Officer of HEA. Mr. Kim has been employed by the Hyundai group since 1971. He
also is a Director of Symbios.
Philip S. Paul has been a member of the Board since March 1998. Since 1991,
he has managed Paul Capital Partners, L.P., a private equity firm. From 1985 to
1991, Mr. Paul was Chairman and Chief Executive Officer of Hillman Ventures,
Inc., a venture capital firm specializing in technology investments. From 1982
to 1985, Mr. Paul was President and Chief Executive Officer of Machine
Intelligence Corp., a robotics company. He also has served as a Director of
Symbios since 1995.
Dr. Victor B. Jipson has been Senior Vice President, Engineering since
December 1995. From 1991 to 1995, he was General Manager of IBM's Optical
Storage Solutions business unit. From 1975 to 1991, Dr. Jipson held key
management positions in research, technical strategy, product strategy and
research and development with IBM.
William F. Roach has been the Company's Senior Vice President, Worldwide
Sales and Marketing since January 1997. From 1989 to 1996, he held various sales
and marketing positions with Quantum, an information storage products company,
including Executive Vice President, Worldwide Sales, from 1994 to 1996. From
1977 to 1989 Mr. Roach held sales and marketing positions with Intel Corp., a
semiconductor company.
Paul J. Tufano has been the Company's Vice President, Finance and Chief
Financial Officer since July 1996. From 1979 to 1996, Mr. Tufano held a variety
of management positions at IBM over a 17 year period. From 1995 to 1996, Mr.
Tufano was Manager of Worldwide Logistics for IBM's Storage Systems division.
Other management positions included Manager of Plans and Controls for its
Desktop and Mobile Storage products business unit, and Controller for IBM's San
Jose, California facility. He is currently a Director of IMS, an electronic
manufacturing service company.
Glenn H. Stevens has been the Company's Vice President, General Counsel and
Secretary since June 1994. From 1992 to 1994, Mr. Stevens had a private law
practice. From 1979 to 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,
Inc. companies.
Phillip C. Duncan has been Vice President, Human Resources since August
1996. From 1994 to 1996, he was Vice President, International Sales and
Marketing and Human Resources of Berkeley Systems, a software company. From May
1992 to June 1994 he held senior human resources management positions at SyQuest
and from March 1990 to May 1992 he held similar positions at Cirrus Logic, a
semiconductor company.
John T. Hagerman has been the Company's Vice President, Strategic
Initiatives since October 1997. From June 1996 to October 1997 he was the
Company's Vice President, Marketing and Strategic Planning.
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From February 1996 to June 1996, he was the Company's Vice President, Strategic
Planning and from 1993 to February 1996 he was the Company's Vice President,
Mobile Products.
K.K. Kim has been the Company's Vice President, Business Development since
May 1994. From 1991 to 1994, Mr. Kim was Director of Corporate Planning Office
for HEI. Prior to 1991, he held various management positions with other
companies affiliated with HEA.
Misha Rozenberg has been the Company's Vice President, Quality since March
1998, and has been Vice President, Supplier Engineering since April 1996. From
1994 to 1996, Mr. Rozenberg was a Senior Director of Supplier Engineering with
Conner Peripherals, Inc., a disk drive company. From 1990 to 1994 he was a
Manager with Apple Computer.
K. H. Teh has been the Company's Vice President, Worldwide Manufacturing
since May 1997. From 1996 to 1997 he was with Iomega Corp., where he had been
Managing Director of its Malaysia manufacturing facility. From 1994 to 1996, he
was a Managing Director, Malaysia Manufacturing, with Quantum, and was a Senior
Director with SyQuest from 1993 to 1994.
David L. Beaver has been the Company's Vice President, Materials since May
1998. From 1994 to 1997, he was Director of Operations-Materials at EMASS, a
data storage company, and from 1991 to 1994 he was Director of Corporate
Materials Procurement at SyQuest.
BOARD COMMITTEES
Following the Offerings, the Board will have four standing committees: an
Audit Committee, a Compensation Committee, an Affiliated Transactions Committee
and a Nominating Committee. The Audit Committee currently consists of Mr.
Christ, Mr. Hill and Mr. Paul. The Audit Committee selects and engages, on
behalf of the Company, the independent public accountants to audit the Company's
annual financial statements and will review and approve the planned scope of the
annual audit. The Compensation Committee currently consists of Mr. Christ, Mr.
Chung and Mr. Paul. The Compensation Committee establishes compensation policies
governing the Company's executive officers, sets bonuses and salaries for
certain officers of the Company including the Chief Executive Officer and
administers or supervises the administration of the Company's employee benefit
programs and executive compensation programs. The Affiliate Transactions
Committee currently consists of Mr. Hill and Mr. Paul. The Affiliate
Transactions Committee is responsible for reviewing all material transactions
regarding contractual, corporate or business relations by and between the
Company and any related or affiliated entity of HEI or HEA. The Nominating
Committee currently consists of Dr. Park, Mr. Cannon and Mr. Hill. The
Nominating Committee recommends from time to time candidates for nomination for
election as directors of the Company. See "Relationship Between the Company and
Hyundai -- Stockholder Agreement -- Rights Regarding Board of Directors," and
"Certain Transactions -- Other Related Party Transactions."
COMPENSATION OF DIRECTORS
Since 1996 and prior to May 13, 1998, non-employee members of the Board
received the following compensation: (i) an annual retainer of $22,000; (ii)
$1,000 per year for service as a committee chairperson; (iii) $1,500 for
attendance at each quarterly meeting of the Board; (iv) reimbursement of travel
and expenses for such meetings; and (v) a one-time initial grant of a
nonqualified stock option to purchase 20,000 shares of Common Stock pursuant to
the Option Plan or the Amended Plan. In April 1998, in connection with an
amendment to the Company's stock option plan, each director holding an option to
purchase Common Stock was granted a new option to purchase a number of shares of
Common Stock equal to 10% of the option shares previously held in exchange for
such amendment. See "-- Option Amendment Program." Effective May 13, 1998,
non-employee directors will receive (i) an annual retainer of $22,000; (ii)
$1,000 per year for service as a committee chairperson; (iii) $1,500 for
attendance at each quarterly meeting of the Board; (iv) $1,000 for attendance at
each, if any, special meeting of the Board; (v) $1,000 for attendance of each
meeting of a committee of the Board which are not held on the same day as a
scheduled board meeting; (vi) reimbursement of travel and expenses for such
meetings; (vii) a one-time initial grant of a nonqualified stock option to
purchase 20,000 shares of the Common Stock pursuant to the Option Plan or the
Amended
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Plan (the "Initial Grant"); and (viii) for so long as a director remains a
member of the Board an additional grant of a non-qualified stock option to
purchase 5,000 shares of Common Stock upon the third anniversary of the initial
Grant. Board members who participate telephonically in any of the meetings
described in subsections (iii), (iv) and (v) above will receive only 50% of the
above-noted compensation for such meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee is composed of Mr. Paul, Mr. Chung and Mr.
Christ. No interlocking relationship exists between any member of the Company's
Compensation Committee and any member of any other company's board of directors
or compensation committee.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation paid
by the Company during the fiscal years ended March 30, 1996, December 28, 1996
and December 27, 1997 to the Company's Chief Executive Officer and each of the
Company's other executive officers whose total compensation for services in all
capacities to the Company exceeded $100,000 during the fiscal year ended
December 27, 1997 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------------------- SECURITIES ALL OTHER
NAME AND FISCAL YEAR SALARY BONUS OTHER ANNUAL UNDERLYING COMPENSATION($)
PRINCIPAL POSITION ENDED(10) ($) ($) COMPENSATION($) OPTIONS(#) (11)
------------------ ------------- ------- ------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Cannon(1)....... Dec. 27, 1997 500,000 750,000(2) -- -- --
President, and Chief Dec. 28, 1996 240,387 250,000(2) -- 450,000 --
Executive Officer Mar. 30, 1996 -- -- -- -- --
William F. Roach(3)........ Dec. 27, 1997 339,242 -- 116,667(4) 125,000 --
Senior VP, Worldwide Dec. 28, 1996 -- -- -- -- --
Sales and Marketing Mar. 30, 1996 -- -- -- -- --
Dr. Victor B. Jipson....... Dec. 27, 1997 258,846 50,000(5) -- -- 4,800
Senior VP, Dec. 28, 1996 176,924 107,500(5) -- 50,000 3,173
Engineering Mar. 30, 1996 70,768 50,000(5) 116,490(10) -- 1,326
Paul J. Tufano(6).......... Dec. 27, 1997 229,986 50,000(7) -- -- 4,800
VP, Finance and Dec. 28, 1996 92,879 50,000(7) -- 50,000 2,322
Chief Financial Officer Mar. 30, 1996 -- -- -- -- --
Phillip C. Duncan(8)....... Dec. 27, 1997 220,000 -- -- -- 4,800
VP, Human Dec. 28, 1996 84,615 80,000(9) -- 40,000 2,094
Resources Mar. 30, 1996 -- -- -- -- --
</TABLE>
- ---------------
(1) Mr. Cannon joined the Company as President and Chief Executive Officer in
July 1996.
(2) Represents bonuses paid in accordance with the Company's offer letter to
Mr. Cannon.
(3) Mr. Roach joined the Company as Senior Vice President, Worldwide Sales and
Marketing in January 1997.
(4) Represents a portion of a $350,000 loan to be forgiven over a three year
period in accordance with the Company's offer letter to Mr. Roach.
(5) Represents bonus paid in accordance with the Company's offer letter to Dr.
Jipson.
(6) Mr. Tufano joined the Company as Vice President, Finance and Chief
Financial Officer in August 1996.
(7) Represents bonus paid in accordance with the Company's offer letter to Mr.
Tufano.
(8) Mr. Duncan joined the Company as Vice President, Human Resources in August
1996.
(9) Represents bonus paid in accordance with the Company's offer letter to Mr.
Duncan.
(10) Represents relocation paid in accordance with the Company's offer letter to
Dr. Jipson.
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(11) As a result of the Company's change in fiscal year end, the fiscal period
ended December 28, 1996 comprises nine months.
(12) The amounts shown in this column, unless otherwise indicated, represent the
Company's annual contribution to the Maxtor Savings Retirement Plan, a
401(k) plan. All U.S. employees are eligible to participate in this plan.
The following table sets forth information with respect to stock options
granted during the fiscal year ended December 27, 1997 to each of the Named
Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION
NUMBER OF GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------ -------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Cannon........... -- -- -- -- -- --
William F. Roach............ 125,000 7.70% $6.00 01/02/07 $471,671 $1,195,307
Dr. Victor B. Jipson........ -- -- -- -- -- --
Paul J. Tufano.............. -- -- -- -- -- --
Phillip C. Duncan........... -- -- -- -- -- --
</TABLE>
- ---------------
(1) All options were granted under the Amended Plan. Options granted under the
Amended Plan vest over a four-year period with 25% vesting at the first
anniversary date of the vest date and 6.25% each quarter thereafter. The
vesting schedule for new participants begins February 1, 1996 or hiring
date, whichever is later. The Board retains discretion to modify the terms,
including the price of outstanding options.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% annual rates of stock price appreciation from the date of grant
to the end of the option term are provided in accordance with rules of the
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock, overall market
conditions and the option holders' continued employment through the vesting
period. This table does not take into account any actual appreciation in the
price of the Common Stock from the date of grant to the present.
There were no options exercised during the twelve months ended December 27,
1997. The following table provides the specified information concerning
unexercised options held as of December 27, 1997 by the Named Executive
Officers:
FISCAL YEAR-END VALUES OF UNEXERCISED OPTIONS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 27, 1997(1) AT DECEMBER 27, 1997(2)
------------------------ ------------------------
NAME VESTED(#) UNVESTED(#) VESTED($) UNVESTED($)
---- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Michael R. Cannon............................. 140,625 309,375 -- --
William F. Roach.............................. -- 125,000 -- --
Dr. Victor B. Jipson.......................... 18,750 31,250 -- --
Paul J. Tufano................................ 15,625 34,375 -- --
Philip C. Duncan.............................. 12,500 27,500 -- --
</TABLE>
- ---------------
(1) All options were granted under the Amended Plan. Options granted under the
Amended Plan vest over a four-year period with 25% vesting at the first
anniversary date of the vest date and 6.25% each quarter thereafter. The
vesting schedule for new participants begins on the grant date.
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(2) As of December 27, 1997, there were no unexercised in-the-money options
because the exercise price per share was equal to the fair market value per
share, as determined by the Board.
EMPLOYMENT AGREEMENTS
In July 1996, the Company entered into a letter agreement with Mr. Cannon,
its current President and Chief Executive Officer, relating to the terms of his
employment, his initial level of compensation and payment of certain
compensation in the event of his termination from the Company under certain
circumstances. The agreement provides for base compensation of $500,000 per
year; payment of a sign-on bonus of $1,000,000, payable in four equal quarterly
installments beginning on the last day of December 1996; an annual bonus
opportunity of approximately $250,000; and the grant of options to purchase
450,000 shares of the Company's Common Stock vesting over a four year period.
The letter agreement further provides that in the event Mr. Cannon is terminated
by the Company without cause, the Company shall pay Mr. Cannon the equivalent of
one year's base salary plus any portion of the sign-on bonus remaining unpaid as
of the date of such termination.
In July 1996, the Company entered into a letter agreement with Mr. Tufano,
its current Vice President, Finance and Chief Financial Officer, relating to the
terms of his employment, his initial level of compensation and payment of
certain compensation in the event of his termination from the Company under
certain circumstances. The agreement provides for base compensation of $230,000
per year; payment of a sign-on bonus of $100,000, payable in two equal
installments in July 1996 and January 1997; an annual bonus opportunity of
approximately $115,000; and the grant of options to purchase 50,000 shares of
the Company's Common Stock vesting over a four year period. The letter agreement
further provides that in the event Mr. Tufano is terminated by the Company
without cause, the Company shall pay Mr. Tufano the equivalent of nine months'
base salary plus any portion of the sign-on bonus remaining unpaid as of the
date of such termination.
In January 1997, the Company entered into a letter agreement with Mr.
Roach, its Senior Vice President, Worldwide Sales and Marketing, relating to the
terms of his employment, his initial level of compensation, and a loan and
associated repayment terms. The agreement provides for base compensation of
$350,000 per year; a $350,000 loan, forgivable on a prorated basis over a
three-year term; a one-time annual bonus between approximately $175,000 and
$350,000; and the grant of options to purchase 125,000 shares of the Company's
Common Stock vesting over a four year period. In accordance with the foregoing
agreement, on January 10, 1997, Mr. Roach delivered to the Company a promissory
note in the principal amount of $350,000 in exchange for payment to him by the
Company of the loan amount. The note provides for forgiveness of one-third of
the outstanding principal balance on each of the first three anniversary dates
of his employment, provided that Mr. Roach is an employee of the Company on each
such date. In addition, the promissory note shall be forgiven in full in the
event of his termination by the Company for any reason other than willful
misconduct of a culpable nature. In the event Mr. Roach voluntarily terminates
his employment with the Company, the balance then due shall become immediately
due and payable.
In August 1996, the Company entered into a letter agreement with Mr. Philip
C. Duncan, its current Vice President, Human Resources, relating to the terms of
his employment, his initial level of compensation and payment of certain
compensation in the event of his termination from the Company under certain
circumstances. The agreement provides for base compensation of $220,000 per
year; payment of a sign-on bonus of $80,000, payable during the first week of
employment; an annual bonus opportunity of approximately $110,000; and the grant
of options to purchase 40,000 shares of Common Stock vesting over a four year
period. The letter agreement further provides that in the event Mr. Duncan is
terminated by the Company without cause, the Company shall pay Mr. Duncan the
equivalent of nine months' base salary.
In March 1997, the Company entered into a letter agreement with Mr. K.H.
Teh, its current Vice President, Worldwide Manufacturing, relating to terms of
his employment, his initial level of compensation and payment of certain
compensation in the event of his termination from the Company under certain
circumstances. The agreement provides for base compensation of S$396,000
(Singapore Dollars) per year; a sign-on bonus of $100,000 (U.S. Dollars),
payable in two installments in March 1997 and March 1998; an annual wage
supplement of one month's base salary payable in December so long as Mr. Teh has
completed twelve months of continued employment; an annual bonus opportunity of
approximately S$198,000 (Singapore Dollars), and the grant of options to
purchase 100,000 shares of the Common Stock vesting over a four
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<PAGE> 73
year period. The Company will provide Mr. Teh with a car and pay for certain
operating expenses. The letter agreement further provides that in the event Mr.
Teh is terminated by the Company without cause, the Company shall pay Mr. Teh
the equivalent of twelve months' base salary.
BENEFIT PLANS
Amended and Restated 1996 Stock Option Plan. The Amended Plan provides for
the grant of incentive stock options ("ISOs") within the meaning of section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), to employees, and
for grants of nonstatutory stock options to employees, non-employee directors
and consultants. The Amended Plan provides that all options must be granted, if
at all, before May 1, 2006. The Board has the authority to amend or terminate
the Amended Plan, provided that no such action may adversely affect the rights
of any person granted an option under the Amended Plan without such person's
consent unless such action 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
regulation.
The Amended Plan's maximum share reserve is 11,250,000 shares of Common
Stock and as of June 1, 1998, options to purchase of a total of 5,627,013 shares
at a weighted average exercise price of $ per share were outstanding and
5,530,989 shares were available for future grants under the Option Plan.
The Amended Plan is administered by the Board or a committee of the Board.
The Board has the power to select the persons to whom options will be granted
and to determine the terms of the options (except as described below with
respect to the automatic outside director grants), including the exercise price,
the number of shares subject to each option and the exercisability thereof, and
the form of consideration payable upon exercise.
The Amended Plan provides for the automatic grant of nonstatutory stock
options to directors of the Company who are not employees of the Company or a
parent or subsidiary corporation of the Company (an "Outside Director"). The
Plan provides that each Outside Director (other than a director who became an
Outside Director as a result of his or her termination of employment), who was
serving as an Outside Director on May 1, 1996 (the "Effective Date") or first
became an Outside Director after the Effective Date, will be granted an option
to purchase 20,000 shares of Common Stock on the Effective Date or the date he
or she became an Outside Director. In addition, for so long as an Outside
Director remains a member of the Board, he or she shall receive an additional
grant of a non-qualified stock option to purchase 5,000 shares of Common Stock
on the third anniversary of the grant described in the preceding sentence.
Options granted under the Amended Plan are not generally transferable by
the optionee, other than by will or the laws of descent and distribution. In
general, options granted under the Amended Plan must be exercised within 90 days
after the end of optionee's status as an employee, director or consultant of the
Company or a parent or subsidiary corporation of the Company, or within twelve
months after a termination due to death or disability, but in no event later
than the expiration of the option's expiration date. The exercise price of all
incentive stock options granted under the Amended Plan must be at least equal to
the fair market value of the Common Stock on the date of grant, and the exercise
price of all nonstatutory stock options granted under the Amended Plan must be
at least equal to 85% of the fair market value of the Common Stock on the date
of grant. With respect to any person who owns stock possessing more than 10% of
the voting power of all classes of the outstanding capital stock of the Company
or a parent or a subsidiary corporation of the Company, the exercise price of
any ISO must equal at least 110% of the fair market value on the grant date and
if the option is an incentive stock option, the term of the option must not
exceed five years. The term of all other ISOs granted under the Amended Plan may
not exceed ten years.
The Amended Plan provides that in the event of certain "transfer of
control" transactions involving the Company, each option may be assumed or an
equivalent option substituted for by the acquiring corporation. If the
outstanding options are not assumed or substituted for as described in the
preceding sentence, shares subject to the outstanding options will become fully
vested and exercisable prior to the date of the closing of such transfer of
control. See "Risk Factors -- Shares Eligible for Future Sale" and "Dilution."
Option Amendment Program. In April 1998, the Company implemented a stock
option amendment program pursuant to which it amended certain options granted
under the Amended Plan prior to October 1,
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1997. The option amendment program was implemented because the agreements
evidencing such options provided for a "Pseudo-IPO Repurchase Right" in favor of
the optionee, as well as certain repurchase rights in favor of the Company,
which required the Company to recognize a quarterly compensation expense for
financial statement purposes. The "Pseudo-IPO Repurchase Right" provided that if
the Company did not complete an initial public offering (an "IPO") within six
months after an "IPO Trigger Date," the optionee could tender his shares to the
Company and require the Company to repurchase such shares at fair market value.
An "IPO Trigger Date" is a date, on or before February 1, 2001, on which all of
the following have occurred: (a) the Company has positive net income for four
consecutive quarters, (b) the Company's value, as determined by an independent
appraisal, equals or exceeds $700 million, and (c) the Company receives the
written opinion of a nationally-recognized investment banking firm indicating
that the Company may undertake an underwritten IPO of its Common Stock.
The agreement evidencing each option which was amended pursuant to the
program was modified to: (i) remove the Company's right of first refusal and
vested shares repurchase option; (ii) remove the Pseudo-IPO Repurchase Right;
and (iii) provide that in the event of a transfer of control of the Company, the
shares subject to the option will become fully vested and exercisable in the
event that the option is not assumed or substituted for by the acquiring
corporation. In addition, each holder of an amended option was granted a new
option to purchase a number of shares of the Common Stock equal to 10% of the
shares subject to the old option (the "New Option"). The shares subject to the
New Option will vest at the same rate as the shares subject to the old option
and the New Option will be evidenced by an agreement with the same terms and
conditions of the old option, as amended. The Pseudo-IPO Repurchase Right was
implemented shortly after HEA had acquired the Company, in order to award and
retain employees. Most of the options having this feature were granted in 1996.
As a result of the amendment the Company's options are no longer subject to
variable accounting treatment.
1998 Employee Stock Purchase Plan. A total of 1.7 million shares of Common
Stock have been reserved for issuance under the Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan"), none of which have yet been issued. The
Purchase Plan permits eligible employees to purchase Common Stock at a discount,
but only through accumulated payroll deductions, during sequential 6-month
offering periods. Participants will purchase shares on the last day of each
offering period. In general, the price at which shares are purchased under the
Purchase Plan is equal to 85% of the lower of the fair market value of a share
of Common Stock on (a) the first day of the offering period, or (b) the purchase
date. The initial offering period under the Purchase Plan will commence on the
Closing of the Offerings.
1998 Restricted Stock Plan. The Company's 1998 Restricted Stock Plan (the
"Restricted Stock Plan") provides for awards of shares of Common Stock to
employees. The Board has the authority to amend or terminate the Restricted
Stock Plan. The Restricted Stock Plan's maximum share reserve is 390,000 shares
of Common Stock. On May 1998, the Compensation Committee of the Board awarded
all of the shares reserved under the Restricted Stock Plan to certain officers.
All unvested shares of restricted stock are forfeited in the event of
termination of employment with the Company. The restricted stock shares vest and
are released from the forfeiture provision three years from the date of the
restricted stock award. Under the terms of a change of control agreement, these
shares are subject to certain acceleration of vesting schedules on a change of
control. See "-- Change of Control Agreements."
Change of Control Agreements. Effective May 29, 1998, the Compensation
Committee of the Board approved Change of Control Agreements pursuant to which
certain executives of the Company may receive severance benefits in the event of
a termination of Employment under Certain circumstances involving a Change of
Control of the Company. For this purpose, a "Change of Control" is defined
generally as acquisition by any person of a beneficial ownership of 50% or more
of the voting stock of the Company, certain mergers or other business
combinations involving the Company, the sale of more than 50% of the assets of
the Company, liquidation of the Company or change in the majority of the
incumbent members of the Board (except for changes in Board composition approved
by a majority of the directors), or the sale by HEA of more than 50% of its
stock in the Company to an HDD manufacturer, provided the number of shares sold
represents at least 10% of the outstanding stock in a single transaction at the
time of such sale. Initial public offerings are excluded from the definition of
Change of Control. Subject to the terms and conditions set forth in the Change
of Control Agreements, severance benefits become payable in the event that,
within 12 months
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following a Change of Control, the executive is terminated by the Company
without cause, or resigns following a reduction in such employee's compensation,
responsibility level, or relocation of more than 100 miles.
In such event, the Eligible Employee is entitled to receive a lump sum cash
payment equal to his or her annual salary plus target incentive for the
severance period. The severance period is 24 months for the Chief Executive
Officer and 12 months for other executives. In addition, the Change of Control
Agreements provide for accelerated vesting of the executive's unvested stock
options and/or restricted stock. For the Chief Executive Officer, all unvested
stock options and restricted stock shall become 100% vested and other executives
will have their option vesting accelerated by an additional two years, and their
restricted stock shall be vested 50% or pro rata based upon the number of months
from the restricted award date, whichever is greater. The executive will also be
entitled to continued coverage under the Company's medical plan for the
severance period. If any part of the benefits under the Change of Control
Agreement is determined by the Company's accountants to be an excess parachute
payment under Section 280G of the Internal Revenue Code, at the executive's
option, the payment will be reduced to the minimum extent necessary to have no
excess parachute payment.
401(k) Plan. The Company maintains a retirement and deferred savings plan
for its employees (the "401(k) Plan") that is intended to qualify as a
tax-qualified plan under the Code. The 401(k) Plan provides that each
participant may contribute up to 15% of his or her pre-tax gross compensation
(up to a statutory limit, which was $10,000 in calendar year 1998). Under the
401(k) Plan, the Company may make discretionary matching contributions. The
Company's contributions to the 401(k) Plan for the fiscal periods ended March
30, 1996, December 28, 1996 and December 27, 1997, were $600,000, $1.2 million
and $1.6 million, respectively. All amounts contributed by participant's and
earnings on such contributions are fully vested at all times.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Amended and Restated Certificate of
Incorporation which provide that directors of the Company shall not be
personally liable for monetary damages to the Company or its stockholders for a
breach of fiduciary duty as a director, except for liability as a result of (i)
a breach of the director's duty of loyalty to the Company or its stockholders;
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) an act related to the unlawful stock
repurchase or payment of a dividend under Section 174 of the Delaware General
Corporation Law; and (iv) transactions from which the director derived an
improper personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Amended and Restated Certificate of Incorporation also authorizes the
Company to indemnify its officers, directors and other agents, by bylaws,
agreements or otherwise, to the full extent permitted under Delaware law. The
Company has and intends to continue to enter into separate indemnification
agreements with each of its directors and officers which may, in some cases, be
broader than the specific indemnification provisions contained in the Delaware
General Corporation Law. The indemnification agreements may require the Company,
among other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified and to obtain directors' and
officers' insurance if available on reasonable terms.
At present, except for the StorMedia litigation, there is no pending
litigation or proceeding involving a director, officer, employee or agent of the
Company where indemnification will be required or permitted. The Company is not
aware of any threatened litigation or proceeding which may result in a claim for
such indemnification. See "Risk Factors -- Limited Protection of Intellectual
Property; Risk of Third Party Claims of Infringement" and "-- StorMedia Legal
Proceedings."
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CERTAIN TRANSACTIONS
RELATIONSHIP WITH HEA
In 1994, HEI and certain of its affiliates purchased 40% of the Company's
outstanding Common Stock for an aggregate cash purchase price of $150.0 million
pursuant to the Stock Purchase Agreement. In early 1996, HEA acquired all of the
remaining shares of the publicly-held Common Stock in a tender offer and merger
for an aggregate purchase price of $215.0 million and also acquired all of the
Company's Common Stock held by HEI and certain of its affiliates. In June 1996
HEA exchanged its Common Stock in the Company for 58,208,955 shares of Series A
Preferred Stock.
In December 1995 HEA loaned the Company $100 million which was due on April
10, 1996 and accrued interest at LIBOR plus 65 basis points, with interest
payable at maturity. This $100 million loan was replaced in April 1996 with a
one year $100 million revolving line of credit bearing interest at HEA's cost of
funds plus 10 basis points, with interest payable quarterly. In July 1996, the
Company borrowed an additional $35 million from HEA due in August 1996, bearing
interest at LIBOR plus 70 basis points with interest payable at maturity; this
loan was repaid at maturity. In April 1997 HEA renewed the $100 million
revolving line of credit and increased the borrowing limit to $150 million. HEA
increased the borrowing limit on this line of credit to $185 million in June
1997, and to $270 million in August 1997. The Company borrowed all available
credit under this facility as of August 1997. In December 1997, $200 million of
this outstanding indebtedness was cancelled in exchange for 29,859,766 shares of
Series A Preferred Stock, the borrowing limit was reduced to $150 million and
the Company repaid an additional $5 million in principal. In January 1998, the
Company repaid an additional $10 million in principal. In April 1998 this
revolving line of credit was renewed with a borrowing limit of $100 million. A
total of $55 million remains outstanding under this revolving line of credit.
In contemplation of the Offerings, HEA, HEI and Maxtor have entered into
certain agreements governing certain relationships between the parties. See
"Relationships Between the Company and Hyundai."
RELATIONSHIP WITH HEI
In August 1995, HEI guaranteed a $100 million 364 day revolving credit
facility of the Company which expired in August 1996. In January 1996, HEI
guaranteed a $13.8 million one year loan to Maxtor Singapore, which was renewed
in January 1997 for an additional year and repaid at maturity on January 1998.
In August 1996, HEI guaranteed an $86 million 364 day revolving credit facility
and a $129 million three year revolving credit facility. In October 1996, the
364 day $86 million revolving credit facility was increased by $10 million and
HEI guaranteed the additional amount. In addition, in October 1996, HEI
guaranteed a separate $10 million one year revolving credit facility which was
repaid by the Company in January 1998. In December 1996, HEI guaranteed two
additional credit facilities, one of which was a three month $20 million
uncommitted line which the Company repaid at maturity in March 1997 and the
other of which was a one year $10 million facility which was repaid at maturity
in December 1997. In August 1997, the Company repaid $65 million of the $96
million 364 day revolving credit facility and extended the balance of $31
million for an additional 364 days, continuing HEI's guarantee. In October 1997
HEI guaranteed an additional $10 million one year revolving credit facility.
On March 30, 1996, the Company entered into an accounts receivable
securitization program with Citicorp Securities, Inc. Under this program the
Company could sell its qualified trade accounts receivable up to $100 million on
a non-recourse basis. As of December 27, 1997, $79.8 million of advances related
to sales of accounts receivable were included in accrued and other liabilities.
As of March 28, 1998, this amount was $86.6 million. In connection with this
agreement, HEI entered into a performance undertaking under which HEI agreed to
cause the Company to collect receivables and to perform obligations of the
Company in the event of the Company's failure to perform. HEI also indemnified
the purchasers from any expenses incurred in enforcing their rights under the
agreement. The Company's asset securitization program was subject to certain
conditions, among which was a condition that all of HEI's long-term public
senior debt securities achieve a specified rating. This condition was not met in
February 1998, and the Company obtained waivers of this condition through April
8, 1998.
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The Company completed a new asset securitization program dated as of April
8, 1998 (the "New Program") arranged by Citicorp to replace the existing
program. Under the New Program, the Company sells all of its trade accounts
receivable through a special purpose vehicle with a purchase limit of $100
million on a non-recourse basis, subject to increase to $150 million, upon the
fulfillment of the conditions subsequent described below. On April 8, 1998, the
uncollected purchase price under the existing program, in the amount of
approximately $100 million, was transferred to represent the purchased interest
of Citicorp's Corporate Receivables Corporation ("CRC") under the New Program.
HEI entered into a new performance undertaking similar to that under the former
program. Continuance of the New Program is subject to certain conditions,
including a condition that all of the long-term public senior debt securities of
HHI achieve a specified rating. In addition, the New Program remains subject to
certain conditions subsequent related to obtaining appropriate waivers as may be
necessary from lenders of the Company's credit facilities, or effecting a cure
of any outstanding defaults under such credit facilities of the Company and
obtaining a performance guarantee from HHI of the obligations of the Company
under the New Program. The Company must satisfy these conditions subsequent
within 30 days of receiving undertaking documents from Citicorp and presently
believes that it will be able to successfully satisfy these conditions.
In May 1995, the Company entered into a definitive manufacturing agreement
with HEI. Under the terms of the agreement, HEI manufactured Company-designed
HDDs for the Company at a site in Korea and the Company purchased approximately
$24.1 million of HDDs. In October 1996, the manufacturing agreement was canceled
and production at the Korean manufacturing site was transferred to the Company's
manufacturing facilities in Singapore. As part of the transfer, the Company
purchased $4.3 million in inventories and approximately $14 million of HEI's
manufacturing equipment, with the purchase price payable one year from the
invoice date. The equipment was invoiced over the period from November 1996
through February 1997. HEI bore all other costs associated with the shut down of
production in Korea.
HEI and IBM are parties to the IBM License Agreement, under which HEI and
its subsidiaries, including the Company, are licensed with respect to certain
IBM patents. HEI is required under the IBM License Agreement to pay IBM a
license fee, payable in installments through 2007. HEI has entered into a
Sublicense Agreement with the Company pursuant to which Maxtor is obligated to
pay IBM a portion of the license fee otherwise due from HEI under the IBM
License Agreement, payable in annual installments ranging from $1.0 million to
$2.3 million, when such amounts are due IBM from HEI under the IBM License
Agreement. Under the IBM License Agreement, if Maxtor ceases to be a
majority-owned subsidiary of HEA, Maxtor can obtain a royalty-free license under
the same terms from IBM upon the request of HEI and Maxtor, and the fulfillment
of certain conditions. Pursuant to the Sublicense Agreement, HEI has agreed to
cooperate to obtain such a license for the Company once the Company ceases to be
a majority owned subsidiary, and the Company has agreed to continue to pay IBM
the Company's allocated license fee following the grant of such a license from
IBM. HEI and the Company have indemnified each other for certain liabilities
arising from their acts or omissions relating to the IBM License Agreement and
the Sublicense Agreement as described below. See "Risk Factors -- Limited
Protection of Intellectual Property; Risk of Third Party Claims of
Infringement," "-- Control by and Dependence on HEA" and "Relationship Between
the Company and Hyundai."
The Company currently is involved in a dispute with StorMedia, which arises
out of the StorMedia Agreement. Pursuant to the StorMedia Agreement, StorMedia
agreed to supply disk media to the Company. StorMedia sued HEI, Mong Hun Chung
(HEI's chairman), Dr. Chong Sup Park (HEA's President and the individual who
signed the StorMedia Agreement on behalf of the Company) and K.S. Yoo (the
individual who signed the StorMedia Agreement on behalf of HEI) alleging that at
the time HEI entered into the StorMedia Agreement, it knew that it would not and
could not purchase the volume of products which it committed to purchase, and
that failure to do so caused damages to StorMedia in excess of $206 million. The
Company believes that it has meritorious defenses against the claims alleged by
StorMedia. See "Relationship between the Company and Hyundai."
RELATIONSHIP WITH IMS
In 1996, the Company sold a majority interest in IMS to certain members of
IMS management and other investors for $25 million in cash and $20 million in
notes and retained a 23.5% ownership interest in IMS. In
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October 1997, IMS completed an initial public offering and repaid in full the
note and its related interest, which aggregated $21.8 million. As of March 28,
1998 the Company's interest in IMS was 16.0%. The Company has indemnified the
investors and IMS up to $17.5 million for certain breaches of representations,
provided that tax and environmental representations are not subject to the
liability limit.
The Company outsources most of its PCB assembly to IMS; IMS supplies the
Company with PCBs, sub-assemblies and fully integrated products under a
manufacturing services agreement. The Company made purchases from IMS of
immaterial amounts in the years ended December 28, 1996 and December 27, 1997.
Two former officers of the Company, Robert Behlman (formerly Vice President of
Manufacturing) of the Company and Nathan Kawaye (formerly Vice President and
Chief Financial Officer of the Company), hold positions as President and Chief
Executive Officer and Vice President and Chief Financial Officer, respectively,
at IMS. Mr. Paul J. Tufano is a current director of IMS. See "Risk
Factors -- Dependence on Suppliers of Components and Sub-Assemblies"
"Business -- Materials and Supplies," "Certain Transactions," and "Relationship
between the Company and Hyundai."
RELATIONSHIP WITH HIT
The Company is preparing to implement a new enterprise-wide information
system provided by SAP, AG. The Company's rights to this new information system
are governed by a license agreement between HIT and SAP. The Company currently
is discussing with SAP the terms on which the Company could obtain a direct
license with SAP. See "Risk Factors -- Transition to and Dependence on
Information Systems; Year 2000 Problem," "Relationship between the Company and
Hyundai" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RELATIONSHIP WITH MMC
HEA formed a division in May 1996 to provide a supply of hard disk media to
the Company. This division of HEA was incorporated as MMC in December 1997 and
is currently a wholly-owned subsidiary of HEA. During the year ended December
27, 1997 and the three month period ended March 28, 1998, MMC supplied 17.4% and
28.8%, respectively, of media purchased by the Company for an aggregate purchase
price of $15.5 million and $27.6 million, respectively. During 1997, MMC's media
price to the Company was 2% below the best price for media available to the
Company from any of its qualified merchant vendors. For the quarter ended March
28, 1998, the actual price for media supplied by MMC for each family of Maxtor
products was based on a discount from weighted average prices of media purchased
by the Company from qualified merchant vendors for such Maxtor products,
resulting in an aggregate 3.7% discount. The Company is currently in the process
of finalizing a formal agreement with MMC with respect to pricing for the
balance of 1998 and does not anticipate that such agreement will result in a
substantial price discount, if any, from the prices available from the Company's
other qualified merchant vendors. See "Risk Factors -- Control by and Dependence
on Hyundai," "-- Dependence on Suppliers of Components and Sub-Assemblies,"
"-- Dependence on International Operations; Risks from International Sales,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Materials and Supplies," and "Certain Transactions."
Mr. Michael R. Cannon is currently a director of MMC.
OTHER RELATED PARTY TRANSACTIONS
The Company has entered into employment agreements with certain of its
officers. See "Management -- Employment Agreements." The Company has entered
into indemnification agreements with each of its directors and executive
officers. Such indemnification agreements require the Company to indemnify such
individuals to the fullest extent permitted by law.
All future material transactions between the Company and its executive
officers, directors, principal stockholders and other affiliates will be
approved by the Affiliated Transaction Committee or by a majority of the
Company's independent and disinterested directors. See "Risk Factors -- Control
by and Dependence on HEA," "Relationship between the Company and Hyundai" and
"Management -- Board Committees."
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 28, 1998 (assuming
conversion of all outstanding shares of Series A Preferred Stock into Common
Stock upon the closing of the Offerings and as adjusted to reflect the sale of
the shares offered hereby, and assuming no exercise of the Underwriters'
over-allotment options) (i) by each person who is known by the Company to
beneficially own more than 5% of Common Stock; (ii) by each of the Named
Executive Officers and by each of the Company's Directors; and (iii) by all of
the Company's officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE BENEFICIALLY
OWNED PRIOR TO OFFERINGS SHARES TO OWNED AFTER OFFERINGS
------------------------- BE SOLD IN --------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT OFFERINGS NUMBER PERCENT
------------------- ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDER
Hyundai Electronics America(2)......... 44,029,850 99.9%
3101 North First Street
San Jose, CA 95134
EXECUTIVE OFFICERS AND DIRECTORS
Dr. Chong Sup Park(3).................. 12,375 * -- 12,375 *
Michael R. Cannon(3)................... 216,563 * -- 216,563 *
Charles F. Christ(3)................... 12,250 * -- 12,250 *
Chang See Chung........................ -- -- -- -- --
Charles Hill(3)........................ 12,250 * -- 12,250 *
Y.H. Kim(3)............................ 12,250 * -- 12,250 *
Dr. Victor B. Jipson(3)................ 30,930 * -- 30,930 *
William F. Roach(3).................... 42,969 * -- 42,969 *
Paul J. Tufano(3)...................... 24,063 * -- 24,063 *
Phillip C. Duncan(3)................... 19,250 * -- 19,250 *
All executives officers and directors
as a group (16 persons).............. 463,550 1.0 -- 463,550 *
</TABLE>
- ---------------
* Less than one percent (1%)
(1) Number of shares beneficially owned and the percentage of shares
beneficially owned are based on (i) 44,037,413 shares outstanding as of
March 28, 1998 and (ii) shares outstanding after the
Offerings assuming no exercise of the Underwriters' over-allotment options.
If such options are exercised in full, the number of shares outstanding
after the Offerings will be and the number of shares owned by
HEA after the Offerings will be ( %). Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission. All shares of Common Stock subject to options currently
exercisable or exercisable within 60 days after March 28, 1998 are deemed to
be outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the number of shares beneficially owned
and the percentage of ownership of such person, but are not deemed to be
outstanding and to be beneficially owned for the purpose of computing the
percentage of ownership of any other person. Except as indicated in the
footnotes to the table and subject to applicable community property laws,
based on information provided by the persons named in the table, such
persons have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) HEA has certain nomination rights and rights to maintain at least a 30%
ownership interest in the Company through the year 2000, and has agreed to
certain limitations on the acquisition of the Company's Common Stock and
proxy solicitations. See "Relationship Between the Company and
Hyundai -- Stockholder Agreement."
(3) All shares subject to an option granted under the Amended Plan which are
exercisable within 60 days after March 28, 1998.
(4) Excludes 44,029,850 shares of Common Stock beneficially owned by HEA. Each
such individual disclaims beneficial ownership of such shares.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 250,000,000 shares
of Common Stock and 95,000,000 shares of Series A Preferred Stock. Each
outstanding share of Series A Preferred Stock will be converted into 0.5 of a
share of Common Stock upon the closing of the Offerings. Upon such conversion,
such Series A Preferred Stock will be canceled, retired and eliminated from the
shares that the Company is authorized to issue. The following summary of certain
provisions of the Common Stock and the Series A Preferred Stock of the Company
does not purport to be complete and is subject to, and qualified in its entirety
by, the Amended and Restated Certificate of Incorporation and Bylaws of the
Company that are included as exhibits to the Registration Statement of which
this Prospectus forms a part and by the provisions of applicable law.
COMMON STOCK
As of March 27, 1997 there were approximately 45,994 shares of Common Stock
outstanding held of record by fourteen stockholders. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock and Preferred Stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any Preferred
Stock. Holders of Common Stock have no preemptive or subscription rights, and
there are no redemption or conversion rights with respect to such shares. All
outstanding shares of Common Stock are fully paid and non-assessable, and the
shares of Common Stock offered hereby will be fully paid and non-assessable.
PREFERRED STOCK
The Board has the authority, without action by the stockholders, to
designate and issue Preferred Stock in one or more series and to designate the
dividend rate, voting rights and other rights, preferences and restrictions of
each series, any or all of which may be greater than the rights of the Common
Stock. It is not possible to state the actual effect of the issuance of any
shares of Preferred Stock upon the rights of holders of the Common Stock until
the Board determines the specific rights of the holders of such Preferred Stock.
However, the effects might include, among other things, restricting dividends on
the Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change in
control of the Company without further action by the stockholders. The Company
has no present plans to issue any shares of Preferred Stock. See "-- Delaware
Anti-Takeover Law and Certain Charter Provisions."
REGISTRATION RIGHTS OF CERTAIN HOLDERS
After the Offerings, HEA, which will hold approximately
shares of Common Stock ( if the Underwriters' overallotment options are
exercised in full), or certain transferees, will be entitled to certain rights
with respect to the registration of such shares under the Securities Act. Under
the terms of the Stockholder Agreement between the Company and HEA, if the
Company proposes to register any of its securities under the Securities Act,
either for its own account or the account of other stockholders exercising
registration rights, HEA and its transferees are entitled to notice of such
registration and are entitled to include shares of such Common Stock therein;
provided, among other conditions, that the underwriters of any offering have the
right to limit the number of such shares included in such registration. In
addition, HEA and certain transferees may require the Company, beginning six
months after the date of this Prospectus, on not more than five occasions to
file a registration statement under the Securities Act with respect to minimum
specified amounts and value of shares held by HEA, and the Company is required
to use its reasonable commercial efforts to effect such registration, subject to
certain conditions and limitations. Registration of such shares under the
Securities Act would result in such shares becoming freely tradable and could
have an adverse effect on the market price for the Common Stock. See "Risk
Factors -- Shares Eligible for Future Sale" and "Relationship between the
Company and Hyundai -- Stockholder Agreement."
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DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), which prohibits a publicly held
Delaware corporation form engaging in any "business combination" with an
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder, unless (i) prior to such date, the
corporation's board of directors approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced; or (iii) on or subsequent to such date, the business
combination is approved by the corporation's board of directors and authorized
at an annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of at least 66 2/3% of the outstanding voting stock not
owned by the interested stockholder.
Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior did own) 15% or
more of the corporation's voting stock.
In addition, pursuant to the Amended and Restated Certificate of
Incorporation the Board has authority to issue up to 95,000,000 shares of
Preferred Stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of these shares without any further vote or action by
the stockholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such Preferred Stock may have other rights, including
economic rights, senior to the Common Stock, and as a result, the issuance of
such Preferred Stock could have a material adverse effect on the market price of
the Common Stock. The Company has no present plan to issue shares of Preferred
Stock.
The Amended and Restated Certificate of Incorporation provides that the
Board will be divided into three classes of directors serving staggered
three-year terms. As a result, only one of the three classes of the Board will
be elected each year. The directors are removable only for cause upon the
affirmative vote of the holders of at least a majority of the voting power of
all outstanding shares of voting stock, voting as a single class. The Board has
the exclusive right to set the authorized number of directors and to fill
vacancies on the Board. The Amended and Restated Certificate of Incorporation
requires that any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing. In addition,
special meetings of the stockholders of the Company may be called only by the
Board, the Chairman of the Board, or the Chief Executive Officer. Advance notice
is required for stockholder proposals or director nominations by stockholders.
These provisions may be amended only by the affirmative vote of at least 66 2/3%
of the outstanding voting stock, voting as a single class. The Company has
entered into a Stockholders Agreement with HEA which grants HEA certain rights
to nominate directors, and restricts HEA's right to solicit proxies and acquire
additional shares of Common Stock.
These provisions could discourage potential acquisition proposals and could
delay or prevent a change in control of the Company. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers at a price above the then current market price of the
Common Stock. Such provisions also may inhibit fluctuations in the market price
of the Common Stock that could result from takeover attempts. See "Risk
Factors -- Effect of Antitakeover Provisions," and "-- Control By and Dependence
on HEA" and "Relationship Between the Company and HEA."
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AMENDED AND RESTATED CERTIFICATE OF INCORPORATION PROVISIONS RELATING TO
CONFLICTS OF INTEREST AND CORPORATE OPPORTUNITIES
In order to address certain potential conflicts of interest between HEA and
the Company, the Company's Amended and Restated Certificate of Incorporation
contains provisions concerning the conduct of certain affairs of the Company as
they may involve HEA and its affiliates (other than the Company) and their
respective officers and directors, and the powers, rights, duties and
liabilities of the Company and its officers, directors, stockholders in
connection therewith. In general, these provisions recognize that the Company
and HEA and their respective affiliates may engage in the same or similar
business activities and lines of business and may have an interest in the same
areas of corporate opportunities and that the Company and HEA and their
respective affiliates will continue to have contractual and business relations
with each other (including service of officers and directors of HEA as directors
of the Company). See "Management -- Directors and Executive Officers."
The Amended and Restated Certificate of Incorporation provides that any
person purchasing or otherwise acquiring any interest in any shares of capital
stock of the Company shall be deemed to have notice of and to have consented to
these provisions.
For purposes of these provisions the term "Company" includes its
subsidiaries and other entities in which it beneficially owns directly or
indirectly 33 1/3% or more of the outstanding voting securities or interests.
For purposes of the following discussion, "Hyundai Affiliates" means HEA, HEI,
any of their successors, and all corporations, partnerships, joint ventures,
associations and other entities that directly or indirectly through one or more
intermediaries is controlled by HEA or HEI (other than the Company and its
subsidiaries and such other entities controlled by the Company).
Conflict of Interest Policy. Article Tenth of Maxtor's Amended and Restated
Certificate of Incorporation sets forth provisions to regulate and guide certain
contractual relations and other business relations of the Company as they may
involve Hyundai Affiliates, or their officers or directors, or other
corporations, partnerships, associations or other organizations in which one or
more the Company's directors have a financial interest ("Related Entities").
Pursuant to Article Tenth, no contract, agreement, arrangement or transaction
between the Company and any Hyundai Affiliate or any Related Entity, or between
the Company and one of the directors or officers of the Company, any Hyundai
Affiliate or any Related Entity or any amendment, modification or termination
thereof (each a "Transaction"), shall be void or voidable solely for the reason
that such parties are parties thereto or that such directors or officers are
present in or participate in the meeting of the Board or committee which
authorizes such Transaction or solely because his or their votes are counted for
such purpose. Pursuant to Article Tenth, any Hyundai Affiliate, any Related
Entity and such officers and directors shall have fully satisfied and fulfilled
any fiduciary duties they may have to the Company and its stockholders, shall
not be liable to the Company or its stockholders for any breach of any fiduciary
duty they may have by reason of the entering into, performance or consummation
of such Transaction and shall be deemed to have acted in good faith and in a
manner such persons believed to be in or not opposed to the best interest of the
Company to the extent such standard is applicable to such person's conduct, and
shall be deemed not to have breached any duty of loyalty to the Company or its
stockholders and not to have derived any improper personal benefit therefrom if:
(i) the material facts as to the Transaction are disclosed to or known
by the Board or the committee that authorized the Transaction and the Board
or such committee in good faith authorizes or approves the Transaction by
the affirmative vote of a majority of the Disinterested Directors on the
Board or such committee (even if less than a quorum);
(ii) the material facts as to the Transaction are disclosed or known
to the holders of voting stock entitled to vote thereon and the Transaction
is specifically approved in good faith by vote of the holders of a majority
of the then outstanding voting stock not owned by any Hyundai Affiliate or
Related Entity, voting as a single class; or
(iii) such Transaction is fair as to the Company at the time it is
authorized, approved or ratified by the Board, a committee thereof or the
stockholders of the Company.
Any Transaction authorized, approved or effected as described in (i) or
(ii) above shall be deemed entirely fair to the Company and its stockholders,
provided however that if such authorization or approval is not obtained or such
Transaction is not effected, no presumption shall arise that such Transaction is
not fair to
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the Company or its stockholders. Directors of the Company who are also directors
or officers of any Hyundai Affiliate or any Related Entity may be counted in
determining the presence of a quorum at a meeting of the Board of a committee
that authorizes or approves any such Transaction and may vote at such meeting.
Equity securities with voting rights owned by any Hyundai Affiliate or any
Related Entities may be counted in determining the presence of a quorum at a
meeting of stockholders that authorizes or approves any such transaction and may
be voted at such meeting. No Hyundai Affiliate shall be liable to the Company or
its stockholders for breach of any fiduciary duty it may have by reason of the
fact that any Hyundai Affiliate takes any action or exercise any rights or gives
or withholds any consent in connection with any Transaction between any Hyundai
Affiliate and the Company. Any Transaction with any corporation, partnership,
joint venture, association or other entity in which the Company beneficially
owns, directly or indirectly 50% or more of the outstanding voting stock, voting
power or similar interest or with any officer or director thereof shall be
deemed to be a Transaction with the Company.
The affirmative vote of the holders of more than 66 2/3% of the voting
power of the Company's equity securities then outstanding, voting together as a
single class, is required to alter, amend or repeal Article Tenth of the Amended
and Restated Certificate of Incorporation in a manner adverse to the interests
of any Hyundai Affiliate or to adopt any provision of the Amended and Restated
Certificate of Incorporation adverse to the interests of any Hyundai Affiliate
and inconsistent with any provision of Article Tenth. Article Tenth further
provides that neither the alteration, amendment or repeal of Article Tenth nor
the adoption of any provision inconsistent with Article Tenth will eliminate or
reduce the effect of Article Tenth in respect of any matter occurring or cause
of action, suit or claim that, but for Article Tenth, would accrue or arise,
prior to such alteration, amendment repeal or adoption.
Corporate Opportunity Policy. Article Eleventh of the Company's Amended and
Restated Certificate of Incorporation sets forth provisions to regulate, define
and guide the conduct of certain affairs of the Company as they may involve
Hyundai Affiliates and their officers and directors, and the powers, rights,
duties and liabilities of the Company and its officers, directors and
stockholders, regarding corporate opportunities.
Article Eleventh provides that in the event that any Hyundai Affiliate
acquires knowledge of a potential transaction or matter that may be a corporate
opportunity for both a Hyundai Affiliate and the Company, the Hyundai Affiliate
shall have no duty to communicate or present such corporate opportunity to the
Company and shall not be liable to the Company or its stockholders for breach of
any fiduciary duty as a stockholder of the Company by reason of the fact that
the Hyundai Affiliate pursues or acquires such corporate opportunity for itself
or another Hyundai Affiliate, directs such corporate opportunity to another
person, or does not present such corporate opportunity to the Company, except to
the extent required by Article Eleventh.
Article Eleventh provides further that if a director or officer of the
Company who is also a director or officer of a Hyundai Affiliate acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for both the Company and any Hyundai Affiliate, such director or
officer of the Company (i) shall have fully satisfied and fulfilled the
fiduciary duties to the Company and its stockholders with respect to such
corporate opportunity, (ii) shall not be liable to the Company or its
stockholders for breach of any fiduciary duty by reason of the fact that any
Hyundai Affiliate pursues or acquires such corporate opportunity for itself or
directs such corporate opportunity to another person (including, without
limitation, another Hyundai Affiliate) or does not communicate information
regarding such corporate opportunity to the Company, (iii) shall be deemed to
have acted in good faith and in a manner he or she reasonably believes to be in
or not opposed to the best interests of the Company, and (iv) shall be deemed
not to have breached his or her duty of loyalty to the Company or its
stockholders and not to have derived an improper benefit therefrom, if such
director or officer acts in a manner consistent with the following policy:
(x) a corporate opportunity offered to any person who is a director
but not an officer of the Company and who is also an officer (whether or
not a director) of any Hyundai Affiliate shall belong to such Hyundai
Affiliate, unless such opportunity is expressly offered, in writing, to
such person primarily in his or her capacity as a director of the Company,
in which case such opportunity shall belong to the Company;
(y) a corporate opportunity offered to any person who is an officer
(whether or not a director) of the Company and who is also a director but
not an officer of any Hyundai Affiliate shall belong to the Company, unless
such opportunity is expressly offered, in writing, to such person primarily
in his or her
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capacity as a director of a Hyundai Affiliate, in which case such
opportunity shall belong to such Hyundai Affiliate; and
(z) a corporate opportunity offered to any other person who is either
(i) an officer of both the Company and a Hyundai Affiliate or (ii) a
director of both the Company and a Hyundai Affiliate and not an officer of
either entity, shall belong to such Hyundai Affiliate or to the Company, as
the case may be, if such opportunity is expressly offered, in writing, to
such person primarily in his or her capacity as an officer or director of
the Company or of such Hyundai Affiliate, respectively; otherwise, such
opportunity shall belong to the Company.
Article Eleventh further provides that any corporate opportunity that
belongs to a Hyundai Affiliate or to the Company pursuant to the foregoing
policy shall not be pursued by the other, or directed by the other to another
person, unless and until the Hyundai Affiliate or the Company, as the case may
be, determines not to pursue the opportunity. However, if the party to whom the
corporate opportunity belongs does not within a reasonable period of time begin
to pursue, or thereafter continue to pursue, such opportunity diligently and in
good faith, the other party may then pursue such opportunity or direct it to
another person.
For purposes of Article Eleventh, "corporate opportunities" shall consist
of business opportunities which (i) the Company is financially able to
undertake, (ii) are, from their nature, in the line or lines of the Company's
business and are of practical advantage to it, and (iii) are ones in which the
Company has an interest or reasonable expectancy. In addition, "corporate
opportunities" shall not include any transaction in which the Company or any
Hyundai Affiliate is permitted to participate pursuant to (a) any agreement
between the Company and any Hyundai Affiliate which was entered into prior to
the closing of this Offering or (b) any subsequent agreement between the Company
and any Hyundai Affiliate approved pursuant to Article Tenth of the Amended and
Restated Certificate of Incorporation. The rights of the Company under any such
agreement are deemed to be contractual rights and shall not be corporate
opportunities of the Company for any purpose.
Article Eleventh further provides that if any contract, agreement,
arrangement or transaction between the Company and any Hyundai Affiliate
involves a corporate opportunity and is approved in accordance with the
procedures set forth in Article Tenth of the Amended and Restated Certificate of
Incorporation, a Hyundai Affiliate and its officers and directors shall also,
for the purposes of Article Eleventh and the other provisions of the Company's
Amended and Restated Certificate of Incorporation, be deemed to have fully
satisfied and fulfilled any fiduciary duties they may have to the Company and
its stockholders. Article Eleventh provides that any such contract, agreement,
arrangement or transaction involving a corporate opportunity not so approved
will not by reason thereof result in any such breach of any fiduciary duty, but
shall be governed by the other provisions of Article Eleventh, the Amended and
Restated Certificate of Incorporation, the Company's Bylaws, and applicable law.
For purposes of Article Eleventh, a director of the Company who is Chairman
of the Board of the Company or a committee thereof shall not be deemed to be an
officer of the Company by reason of holding such position (regardless of whether
such position is deemed an office of the Company under the Bylaws of the
Company), unless such person is a full-time employee of the Company.
The affirmative vote of the holders of more than sixty-six and two-thirds
percent (66 2/3%) of the voting power of the Company's equity securities then
outstanding, voting together as a single class, is required to alter, amend or
repeal Article Eleventh in a manner adverse to the interests of the Hyundai
Affiliates, or adopt any provision of the Amended and Restated Certificate of
Incorporation adverse to the interests of any Hyundai Affiliate and inconsistent
with, any provision of Article Eleventh. Neither the alteration, amendment or
repeal of Article Eleventh, nor the adoption of any provision inconsistent with
Article Eleventh, shall eliminate or reduce the effect of Article Eleventh in
respect of any matter occurring, or any cause of action, suit or claim that, but
for Article Eleventh, would accrue or arise, prior to such alteration,
amendment, repeal or adoption.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to the Offerings, there was no public market for the
Common Stock. Future sales of substantial amounts of the Common Stock in the
public market could adversely affect the market price of the Common Stock.
Upon completion of the Offerings, the Company will have outstanding an
aggregate of shares of Common Stock, assuming (i) the issuance of
shares of Common Stock offered hereby and (ii) no exercise of
options to purchase Common Stock after . Of these shares, the
shares sold in the Offerings will be freely tradable without
restriction or further registration under the Securities Act, except for any
shares purchased by "Affiliates" of the Company as that term is defined in Rule
144 under the Securities Act (whose sales would be subject to certain
limitations and restrictions described below).
The remaining 44,075,844 shares of Common Stock held by existing
stockholders were issued and sold by the Company in reliance on exemptions from
the registration requirements of the Securities Act. All of these shares will be
subject to "lock-up" agreements described below on the effective date of the
Offerings. On the effective date of the Offerings, shares not subject to the
lock-up agreements described below will be eligible for sale pursuant to Rule
144(k). [Beginning days after the effective date of the Offerings,
additional shares not subject to the lock-up agreements described
below will become eligible for sale, subject in most cases to the limitations of
Rule 144. Upon expiration of the lock-up agreements 180 days after the effective
date of the Offerings, additional shares will become eligible for
sale, subject in most cases to the limitations of Rule 144. In addition, holders
of stock options could exercise such options and sell certain of the shares
issued upon exercise as described below. (To be revised upon resolution of
issues related to HEA's registration rights.)]
As of there were a total of shares of Common
Stock subject to outstanding options under the Amended Plan, of
which were vested and exercisable. All of these shares are subject to lock-up
agreements. All options held by officers and directors of the Company are
subject to 180 day lock-up agreements. Beginning 90 days after the effective
date of the Offerings, shares of Common Stock which are subject
to outstanding options and not subject to the lock-up agreements will after
exercise become eligible for sale in accordance with Rule 701 under the
Securities Act ("Rule 701"). Immediately after the completion of the Offerings,
the Company intends to file registration statements on Form S-8 under the
Securities Act to register all of the shares of Common Stock issued or reserved
for future issuance under the Amended Plan. On the date 180 days after the
effective date of the Offerings, a total of shares of Common
Stock subject to outstanding options will be vested and exercisable. After the
effective dates of the registration statements on Form S-8, shares purchased
upon exercise of options granted pursuant to the Amended Plan generally would be
available for resale in the public market.
The officers and directors and all existing stockholders of the Company
have agreed not to sell or otherwise dispose of any of their shares for a period
of 180 days after the date of the Offerings. Smith Barney Inc., however, may in
its sole discretion, at any time without notice, release all or any portion of
the shares subject to lock-up agreements.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately
shares immediately after the Offerings) or (ii) generally, the average weekly
trading volume in the Common Stock during the four calendar weeks preceding the
required filing of a Form 144 with respect to such sale. Sales under Rule 144
are generally subject to the availability of current public information about
the Company. Pursuant to Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without having to comply with the manner
of sale, public information, volume limitation or notice filing provisions of
Rule 144. Pursuant to Rule 701, persons who
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purchase shares upon exercise of options granted prior to the effective date of
the Offerings are entitled to sell such shares 90 days after the effective date
of the Offerings in reliance on Rule 144, without having to comply with the
holding period and notice filing requirements of Rule 144 and, in the case of
non-affiliates, without having to comply with the public information, volume
limitation or notice filing provisions of Rule 144.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the date the Company
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), pursuant to written compensatory benefit
plans or written contracts relating the compensation of such persons. In
addition, the Commission had indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this Prospectus).
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this Prospectus, may be sold by persons other than Affiliates (as
defined in Rule 144 under the Securities Act) subject only to the manner of sale
provisions of Rule 144 and by Affiliates under Rule 144 without compliance with
its one year minimum holding period requirements. See "Description of Capital
Stock -- Registration Rights of Certain Holders."
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO HOLDERS OF COMMON STOCK
GENERAL
The following is a general discussion of certain United States federal
income and estate tax considerations relating to the ownership and disposition
of Common Stock by a holder who acquires and owns such Common Stock as a capital
asset within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended (the "Code"). This discussion does not consider specific facts and
requirements that may be relevant to a particular holder's tax position, does
not address all aspects of United States federal income and estate taxes and
does not deal with foreign, state, and local tax consequences and United States
federal gift taxes that may be relevant to such holders in light of their
personal circumstances. Further, it does not discuss the rules applicable to
holders subject to special tax treatment under the federal income tax laws
(including but not limited to, banks, insurance companies, tax-exempt
organizations, dealers in securities or currencies, holders of securities held
as part of a "straddle," "hedge," or "conversion transaction," traders in
securities electing to mark to market their securities positions and persons who
undertake a constructive sale of Common Stock). This discussion is based on
current provisions of the Code, existing and proposed regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change, possibly on a retroactive basis. Accordingly, each
prospective purchaser of Common Stock is advised to consult a tax advisor with
respect to current and possible future tax consequences of acquiring, holding,
and disposing of Common Stock.
U.S. HOLDERS
The following discussion is limited to a holder of Common Stock that for
United States federal income tax purposes is (i) a citizen or resident (within
the meaning of Section 7701 (b) of the Code) of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States, or any state or any political subdivision thereof,
(iii) an estate whose income is includible in gross income for United States
federal income tax purposes, regardless of its source, or (iv) in general, a
trust subject to the primary supervision of a court within the United States and
the control of a United States person as described in Section 7701(a)(30) of the
Code (a "U.S. Holder").
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Dividends and Gain on Disposition of Common Stock
In general, dividends paid from current or accumulated earnings and profits
of the Company, as determined for U.S. federal income tax purposes, will be
included in a U.S. Holder's income as ordinary income (subject to a possible
dividends received deduction in the case of corporate holders) as they are paid.
Gain or loss realized on the sale or exchange of Common Stock will equal the
difference between the amount realized on such sale or exchange and the U.S.
Holder's adjusted tax basis in such Common Stock. Gain on the Common Stock held
by an individual for more than 18 months is subject to tax at a maximum rate of
20% and gain on the Common Stock held by an individual for more than one year
and up to 18 months is subject to tax at a maximum rate of 28%.
Information Reporting and Backup Withholding
A U.S. Holder of Common Stock may be subject to "backup withholding" at a
rate of 31% with respect to certain "reportable payments," including dividend
payments. These backup withholding rules apply if the holder, among other
things, (i) fails to furnish a social security number or other taxpayer
identification number ("TIN") certified under penalties of perjury within a
reasonable time after the request therefor, (ii) furnishes an incorrect TIN,
(iii) fails to report property interest or dividends, or (iv) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that such holder is
not subject to backup withholding. A holder who does not provide the Company
with its correct TIN also may be subject to penalties imposed by the IRS. Any
amount withheld from a payment to a U.S. Holder under the backup withholding
rules is creditable against the holder's federal income tax liability, provided
that the required information is furnished to the IRS. Backup withholding will
not apply, however, with respect to payments made to certain U.S. Holders,
including corporations and tax-exempt organizations, provided their exemptions
from backup withholding are properly established.
The Company will report to the U.S. Holders of Common Stock and to the IRS
the amount of any "reportable payments" for each calendar year and the amount of
tax withheld, if any, with respect to such payments.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Non-U.S. Holder. As used herein, the term "Non-U.S.
Holder" means any holder other than a U.S. Holder. For purposes of withholding
tax on dividends discussed below, dividends and gain on the sale, exchange or
other disposition of Common Stock will generally be considered to be "U.S. trade
or business income" if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business or (ii) in the case of most treaty
residents, attributable to a permanent establishment (or, in the case of an
individual, a fixed base) in the United States.
Dividends
In general, dividends paid to a Non-U.S. Holder of Common Stock will be
subject to withholding of United States federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty, unless the
dividends are U.S. trade or business income. If the dividend is U.S. trade or
business income, the dividend would be subject to United States federal income
tax on a net income basis at applicable graduated individual or corporate rates
and would be exempt from the 30% withholding tax described above. Any such
dividends that are U.S. trade or business income received by a foreign
corporation may, under certain circumstances, be subject to the additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Certain certification and disclosure requirements
must be complied with in order to be exempt from withholding under the U.S.
trade or business income exemption discussed above.
Under current United States Treasury regulations, dividends paid to a
stockholder at an address in a foreign country are presumed to be paid to a
resident of such country for purposes of the withholding discussed
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above (unless the payor has knowledge to the contrary), including for purposes
of determining the applicability of a tax treaty rate. Under Treasury
Regulations effective for payments after December 31, 1999 (the "New
Regulations"), to obtain a reduced rate of withholding under a treaty, a
Non-U.S. Holder would generally be required to provide an Internal Revenue
Service Form W-8 (or suitable substitute form) certifying such Non-U.S. Holder's
entitlement to benefits under a treaty. These certification requirements may be
relaxed somewhat in the case of a Non-U.S. Holder who holds Common Stock through
an account maintained at a non-U.S. office of a financial institution. Certain
other special rules may be applicable to a Non-U.S. Holder under the New
Regulations.
A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty or whose dividends have
otherwise been subjected to withholding in an amount that exceeds such holders'
United States federal income tax liability, may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the United
States Internal Revenue Service (the "Service").
Gain on Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain realized on a sale or other disposition of
Common Stock unless (i) the gain is U.S. trade or business income, (ii) in the
case of a Non-U.S. Holder who is a nonresident alien individual and holds Common
Stock as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year of the sale or other disposition and certain other
conditions are met or (iii) the Non-U.S. Holder is subject to tax pursuant to
provisions of United States tax law that apply to certain expatriates.
Information Reporting and Backup Withholding
The Company must report annually to the Service and to each Non-U.S. Holder
the amount of any dividends paid to, and the tax withheld with respect to, such
Non-U.S. Holder, regardless of whether any tax was actually withheld. Copies of
these information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
Non-U.S. Holder resides.
The payment of proceeds on the disposition of shares of Common Stock to or
through the United States office of a United States or foreign broker will be
subject to information reporting and backup withholding at a rate of 31.0%
unless the owner provides the certification described above or otherwise
establishes an exemption. The proceeds of the disposition by a Non-U.S. Holder
of shares of Common Stock to or through a foreign office of a broker will not be
subject to backup withholding or information reporting. However, if such broker
is a U.S. person, a controlled foreign corporation for United States tax
purposes, or a foreign person, 5.0% or more of whose gross income from all
sources for certain periods is from activities that are effectively connected
with a U.S. trade or business, information reporting requirements will apply
unless such broker has documentary evidence in its files of the holder's
Non-U.S. status and has no actual knowledge to the contrary or unless the holder
otherwise establishes an exemption. Any amount withheld under the backup
withholding rules is allowable as a credit against the Non-U.S. Holder's federal
income tax, provided that the required information is provided to the Service.
The New Regulations would modify the application of the information reporting
requirements and back-up withholding tax to Non-U.S. Holders effective January
1, 2000.
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<PAGE> 89
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "U.S. Underwriting Agreement") among the Company, the Selling Stockholder
and each of the underwriters named below (the "U.S. Underwriters"), for whom
Smith Barney Inc., Hambrecht & Quist LLC, Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and NationsBanc Montgomery Securities LLC
are acting as representatives (the "U.S. Representatives"), the Company and the
Selling Stockholder have agreed to sell to each of the U.S. Underwriters and
each of the U.S. Underwriters has severally agreed to purchase from the Company
and the Selling Stockholder the aggregate number of shares of Common Stock set
forth opposite its name in the table below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER COMMON STOCK
----------- ----------------
<S> <C>
Smith Barney Inc............................................
Hambrecht & Quist LLC.......................................
Lehman Brothers Inc.........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
NationsBanc Montgomery Securities LLC.......................
[Other U.S. Underwriters]...................................
Total..................................................
</TABLE>
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters to purchase the shares of Common Stock listed above are subject to
certain conditions set forth therein. The U.S. Underwriters are committed to
purchase all of the shares of Common Stock agreed to be purchased by the U.S.
Underwriters pursuant to the U.S. Underwriting Agreement (other than those
covered by the over-allotment options described below), if any shares of Common
Stock are purchased. In the event of default by any U.S. Underwriter, the U.S.
Underwriting Agreement provides that, in certain circumstances, the purchase
commitments of the non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
The U.S. Representatives have advised the Company and the Selling
Stockholder that the U.S. Underwriters propose initially to offer such shares of
Common Stock to the public at the initial public offering price thereof set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a discount not in excess of $. per share. The U.S. Underwriters may
allow, and such dealers may reallow, a discount not in excess of $. per
share on sales to certain other dealers. After the initial public offering of
the shares of Common Stock, the public offering price and such discounts may be
changed.
The Company and the Selling Stockholder also have entered into an
underwriting agreement (the "International Underwriting Agreement") with the
International Underwriters named therein, for whom Smith Barney Inc., Hambrecht
& Quist, Lehman Brothers International (Europe), Merrill Lynch International and
NationsBanc Montgomery Securities LLC are acting as representatives (the
"International Representatives" and, together with the U.S. Representatives, the
"Representatives"), providing for the concurrent offer and sale of of
the shares of Common Stock outside the United States and Canada.
The closing with respect to the sale of the shares of Common Stock pursuant
to the U.S. Underwriting Agreement is a condition to the closing with respect to
the sale of the shares of Common Stock pursuant to the International
Underwriting Agreement, and the closing with respect to the sale of the shares
of Common Stock pursuant to the International Underwriting Agreement is a
condition to the closing with respect to the sale of the shares of Common Stock
pursuant to the U.S. Underwriting Agreement. The initial public offering price
and underwriting discounts per share of Common Stock for the U.S. Offering and
the International Offering will be identical.
Each U.S. Underwriter has severally agreed that, as part of the
distribution of the shares of Common Stock by the U.S.
Underwriters, (i) it is not purchasing any shares of Common Stock for the
88
<PAGE> 90
account of anyone other than a United States or Canadian Person; (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute any Prospectus relating to the U.S. Offering to
any person outside of the United States or Canada, or to anyone other than a
United States or Canadian Person; and (iii) any dealer to whom it may sell any
shares of Common Stock will represent that it is not purchasing for the account
of anyone other than a United States or Canadian Person and agree that it will
not offer or resell, directly or indirectly, any shares of Common Stock outside
of the United States or Canada, or to anyone other than a United States or
Canadian Person or to any other dealer who does not so represent and agree.
Each International Underwriter has severally agreed that, as part of the
distribution of the shares of Common Stock by the International
Underwriters, (i) it is not purchasing any shares of Common Stock for the
account of any United States or Canadian Person; (ii) it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Common
Stock or distribute any Prospectus to any person in the United States or Canada,
or to any United States or Canadian Person; and (iii) any dealer to whom it may
sell any shares of Common Stock will represent that it is not purchasing for the
account of any United States or Canadian Person and agree that it will not offer
or resell, directly or indirectly, any shares of Common Stock in the United
States or Canada, or to any United States or Canadian Person or to any other
dealer who does not so represent and agree.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and International Underwriters dated , 1998. "United States or
Canadian Persons" means any person who is a national or resident of the United
States or Canada, any corporation, partnership or other entity created or
organized in or under the laws of the United States or Canada or of any
political subdivision thereof, and any estate or trust the income of which is
subject to United States or Canadian federal income taxation, regardless of its
source (other than a foreign branch of such entity) and includes any United
States or Canadian branch of a person other than a United States or Canadian
Person.
Each U.S. Underwriter that will offer or sell shares of Common Stock in
Canada as part of the distribution has severally agreed that such offers and
sales will be made only pursuant to an exemption from the prospectus
requirements in each jurisdiction in Canada in which such offers and sales are
made.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Common Stock as may be
mutually agreed. The price of any shares of Common Stock so sold shall be the
initial public offering price thereof set forth on the cover page of this
Prospectus, less an amount not greater than the concession to securities dealers
set forth above. To the extent that there are sales between the International
Underwriters and the U.S. Underwriters pursuant to the Agreement Between U.S.
Underwriters and International Underwriters, the number of shares of Common
Stock initially available for sale by the U.S. Underwriters or by the
International Underwriters may be more or less than the amount specified on the
cover page of this Prospectus.
Each International Underwriter has severally represented and agreed that
(i) it has not offered or sold and, prior to the expiration of six months from
the closing of the International Offering, will not offer or sell any shares of
Common Stock in the United Kingdom other than to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (whether as principal or agent) for the purposes of their businesses
or otherwise in circumstances which have not resulted in and will not result in
an offer to the public within the meaning of the Public Offers of Securities
Regulations 1995; (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the shares of Common Stock in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issue of the shares of Common Stock to a person who is of a kind described in
Article II(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
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<PAGE> 91
The Company and the Selling Stockholder have granted to the U.S.
Underwriters and the International Underwriters options to purchase up to an
additional and shares of Common Stock, respectively, in each
case at the applicable price to the public less the applicable underwriting
discount set forth on the cover page of this Prospectus, solely to cover
over-allotments, if any. Such options may be exercised at any time up to 30 days
after the date of this Prospectus. To the extent such options are exercised,
each of the U.S. Underwriters and the International Underwriters will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock as the percentage it was
obligated to purchase pursuant to the U.S. Underwriting Agreement or the
International Underwriting Agreement, as applicable.
The Company has agreed with the Underwriters not to offer, pledge, sell,
contract to sell, or otherwise dispose of (or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise) by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company), directly or
indirectly, or announce the offering of, any other shares of Common Stock or any
securities or options convertible into, or exchangeable or exercisable for,
shares of Common Stock for a period of 180 days following the date hereof
without the prior written consent of Smith Barney Inc. subject to certain
limited exceptions. In addition, each of the Company's officers, directors and
stockholders has agreed with the Underwriters not to offer, sell, contract to
sell, pledge or otherwise dispose of, or file a registration statement with the
Securities and Exchange Commission in respect of, or establish or increase a put
equivalent position or liquidate or decrease a call equivalent position within
the meaning of Section 16 of the Exchange Act with respect to any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for shares of Common Stock, or publicly announce an intention to effect any such
transaction, for a period of 180 days after the date hereof unless with the
prior written consent of Smith Barney Inc., subject to certain limited
exceptions. Smith Barney Inc. currently does not intend to release any
securities subject to such lock-up agreements, but may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to such lock-up agreements.
The U.S. Underwriting Agreement and the International Underwriting
Agreement provide that the Company and the Selling Stockholder will indemnify
the several U.S. Underwriters and International Underwriters against certain
liabilities under the Securities Act, or contribute to payments the U.S.
Underwriters and the International Underwriters may be required to make in
respect thereof.
In connection with the Offerings, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offerings than
they are committed to purchase from the Company and the Selling Stockholder, and
in such case may purchase Common Stock in the open market following completion
of the Offerings to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
shares of Common Stock by exercising the Underwriters' over-allotment
options referred to above. In addition, the Representatives, on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer participating
in the Offerings), for the account of the other Underwriters, the selling
concession with respect to Common Stock that is distributed in the Offerings but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Common Stock at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are undertaken, they may be discontinued at
any time.
The Underwriters do not intend to confirm sales in the Offerings to any
accounts over which they exercise discretionary authority.
90
<PAGE> 92
Immediately prior to the Offerings, there has been no public market for the
Common Stock. Accordingly, the initial public offering price for the shares of
Common Stock will be determined by negotiation among the Company, the Selling
Stockholder and the Representatives. Among the factors considered in determining
the initial public offering price will be the Company's record of operations,
its current financial condition, its future prospects, the market for its
services, the experience of management, the economic conditions of the Company's
industry in general, the general condition of the equity securities market and
the demand for similar securities of companies considered comparable to the
Company and other relevant factors. There can be no assurance, however, that the
prices at which the Common Stock will sell in the public market after the
Offerings will not be lower than the price at which the shares of Common Stock
are sold by the Underwriters. See "Risk Factors -- Expected Volatility of Stock
Price; Absence of Current Trading Market for the Common Stock."
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Gray Cary Ware &
Freidenrich LLP, Palo Alto, California and for the Underwriters by Cleary,
Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The consolidated balance sheets of Maxtor Corporation as of December 28,
1996 and December 27, 1997 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the nine months
ended December 28, 1996 and for the year ended December 27, 1997 included in
this Prospectus and registration statement, have been included herein in
reliance on the report, which include an emphasis of a matter related to the
Company's ultimate parent, Hyundai Electronics Industries, Co., Ltd., of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing. The consolidated statements of
operations, stockholders' equity (deficit) and cash flows of the Company for the
year ended March 30, 1996 included in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report, given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any amendments
thereto) on Form S-1 under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, and the financial statements and notes filed as a part thereof.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement, including the exhibits thereto and the
financial statements and notes filed as a part thereof, as well as such reports
and other information filed with the Commission, may be inspected without charge
at the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549 and copies of all or any part thereof may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at 7 World Trade Center,
New York, New York 10048 upon payment of certain fees prescribed by the
Commission. The Commission also maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's Web site is http://www.sec.gov.
91
<PAGE> 93
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. The reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W. Washington,
D.C. 20549, and at the Commission's Regional Offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
also can be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Reports and
other information concerning the Company can also be inspected at the offices of
the National Association of Securities Dealers, Inc., Market Listing Section,
1735 K Street, N.W. Washington, D.C. 20006.
92
<PAGE> 94
GLOSSARY
Application Specific Integrated Circuit (ASIC) -- a custom designed
integrated circuit that performs a specific application rather than
general-purpose chips such as conventional logic chips with discrete gates. The
use of an ASIC in place of a conventional logic chip reduces product size and
cost.
Actuator -- the mechanism that moves the head assembly on a disk. This
mechanical assembly positions the read/write heads over the circumferential line
which describes the target cylinder.
Areal density -- the maximum number of bits per linear inch of storage
surface times the number of tracks per radial inch yields the areal density of
bits per square inch.
Build-to-Order (BTO) -- supply chain management methodology where personal
computers are built to the unique requirements of a specific end-user customer
order.
Controller -- a portion of the IC circuit that manages the flow of data to
and from the disk media including the error correction coding, media defect
management, actuator positioning and system host interface interaction.
Digital Signal Processor (DSP) -- a compact integrated circuit that
provides an ultra-fast simplified instruction set processor commonly used in
actuator control applications.
Firmware -- the software program, written either in high-level language or
in assembly or machine language, which, when combined with the mechanical
mechanisms and ASICs within the drive, controls the functions of the hard drive.
Gigabyte (GB) -- one billion bytes.
Head Disk Assembly (HDA) -- the mechanical components of a disk drive
(minus the electronics), which includes the actuators, read/write heads and
platters.
Head Stack Assembly (HSA) -- the sub-assembly that contains the read/write
heads and actuator assembly.
Interface -- the all-inclusive definition of the connection and interaction
between the hard drive and the host system.
Just-in-Time (JIT) -- inventory management system where components are
stored near a manufacturing facility so they can be released as they are needed
to support the flow of material on the assembly line.
Magnetic Disk -- are disks made of a smooth substrate to which a thin
coating of magnetic materials is applied. Each disk has a slider suspended
directly above it, holding the head, which can read from or write data to the
spinning disk.
Magneto-resistive (MR) -- a technology used for the read element of a
read/write head used with a high-density magnetic disk. HDDs use a
magneto-resistive read head for reading and an inductive element for writing. As
storage capacity increases and the bit gets smaller, the magnetic field of the
bit becomes weaker. The magneto-resistive head is more sensitive to magnetic
fields than inductive read heads.
Media -- materials that hold data in any form or that allow data to pass
through them, including paper, transparencies, multipart forms, hard, floppy and
optical disks, magnetic tape, wire, cable and fiber.
Megabyte (MB) -- one million bytes.
Printed Circuit Board (PCB) -- a flat board that holds chips and other
electronic components. The board is made of reinforced fiberglass or plastic and
interconnects components via copper pathways. The main printed circuit board in
a system is called a system board or motherboard, while smaller ones that plug
into the slots in the main board are called boards or cards.
Read Channel -- a circuit in a disk drive that provides for changes for the
recording to and the reading from the magnetic disk.
93
<PAGE> 95
Read/Write Head -- a device that reads (senses) and writes (records) data
on a magnetic disk or tape. For writing, the surface of the disk or tape is
moved past the read/write head. By discharging electrical impulses at the
appropriate times, bits are recorded as tiny, magnetized spots of positive or
negative polarity. For reading, the surface is moved past the read/write head,
and the bits that are present induce an electrical current within the head.
Sector -- the smallest unit of storage read or written on a disk.
Sliders -- aerodynamically designed objects that keep the read/write head
at a proper distance from the disk platter. The read/write head is embedded
within the slider.
Spindle -- a rotating shaft in a disk drive.
Thin-film -- a microscopically thin layer of semiconductor or magnetic
material that is deposited onto a metal or ceramic disk.
Thin-film Head -- a read/write head for high-density disks that is made
from thin layers of a conducting film deposited onto a nickel-iron core.
94
<PAGE> 96
MAXTOR CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF MAXTOR CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Consolidated Balance Sheets December 28, 1996, December 27,
1997 and March 28, 1998 (unaudited)....................... F-2
Consolidated Statements of Operations Fiscal year ended
March 30, 1996, nine months ended December 28, 1996,
fiscal year ended December 28, 1997, and for each of the
three month periods ended March 29, 1997 and March 28,
1998 (unaudited).......................................... F-3
Consolidated Statements of Stockholders' Equity (Deficit)
Fiscal year ended March 30, 1996, nine months ended
December 28, 1996, fiscal year ended December 28, 1997 and
for the three month period ended March 28, 1998
(unaudited)............................................... F-4
Consolidated Statements of Cash Flows Fiscal year ended
March 30, 1996, nine months ended December 28, 1996,
fiscal year ended December 28, 1997 and for each of the
three month periods ended March 29, 1997 and March 28,
1998 (unaudited).......................................... F-5
Notes to Consolidated Financial Statements.................. F-6
Report of Coopers & Lybrand L.L.P., Independent
Accountants............................................... F-23
Report of Ernst & Young LLP, Independent Auditors........... F-24
</TABLE>
FINANCIAL STATEMENT SCHEDULE:
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.
<TABLE>
<S> <C>
Schedule II
Valuation and Qualifying Accounts -- Allowance for
Doubtful Accounts..................................... S-1
</TABLE>
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.
F-1
<PAGE> 97
MAXTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, MARCH 28,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 31,313 $ 16,925 $ 13,305
Accounts receivable, net of allowance for doubtful
accounts of $5,255 at December 28, 1996, $3,573 at
December 27, 1997 and $3,238 at March 28, 1998......... 82,876 241,777 312,978
Accounts receivable from affiliates....................... 6,248 5,870 5,417
Inventories............................................... 80,878 155,312 163,974
Prepaid expenses and other................................ 5,239 20,814 34,466
--------- --------- ---------
Total current assets.............................. 206,554 440,698 530,140
Net property, plant and equipment........................... 92,073 99,336 96,547
Other assets................................................ 15,912 15,438 7,881
--------- --------- ---------
$ 314,539 $ 555,472 $ 634,568
========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings, including current portion of
long-term debt......................................... $ 149,800 $ 100,057 $ 76,159
Short-term borrowings due to affiliates................... -- 65,000 55,000
Accounts payable.......................................... 109,956 206,563 291,393
Accounts payable to affiliates............................ 13,459 25,022 39,110
Accrued and other liabilities............................. 139,678 155,563 173,502
--------- --------- ---------
Total current liabilities......................... 412,893 552,205 635,164
Long-term debt and capital lease obligations due after one
year...................................................... 229,109 224,313 219,320
Commitments and contingencies (Note 8)
--------- --------- ---------
Total liabilities........................................... 642,002 776,518 854,484
Stockholders' deficit:
Series A Preferred Stock, $0.01 par value, 95,000,000
shares authorized; 58,208,955 shares issued and
outstanding at December 28, 1996; 88,059,701 issued and
outstanding at December 27, 1997 and March 28, 1998;
aggregate liquidation value $390,000 at December 28,
1996, $590,000 at December 27, 1997, and March 28,
1998................................................... 582 880 880
Common Stock, $0.01 par value, 250,000,000 shares
authorized; no shares issued and outstanding at
December 28, 1996; 7,563 shares issued and outstanding
at December 27, 1997 and March 28, 1998................ -- -- --
Additional paid-in capital.................................. 335,017 534,765 537,090
Unrealized gain on investments in equity securities......... -- 16,262 25,386
Accumulated deficit......................................... (663,062) (772,953) (783,272)
--------- --------- ---------
Total stockholders' deficit....................... (327,463) (221,046) (219,916)
--------- --------- ---------
$ 314,539 $ 555,472 $ 634,568
========= ========= =========
</TABLE>
See accompanying notes.
F-2
<PAGE> 98
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED ENDED
MARCH 30, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1996 1996 1997 1997 1998
---------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue........................... $1,264,627 $ 771,655 $ 1,384,799 $238,042 $ 545,231
Revenue from affiliates........... 4,371 27,229 39,521 8,966 4,386
---------- --------- ----------- -------- ----------
Total revenue................ 1,268,998 798,884 1,424,320 247,008 549,617
Cost of revenue................... 1,192,403 861,551 1,316,774 245,862 483,798
Cost of revenue from affiliates... 3,902 27,307 36,162 8,254 3,564
---------- --------- ----------- -------- ----------
Total cost of revenue........ 1,196,305 888,858 1,352,936 254,116 487,362
Gross profit (loss)............... 72,693 (89,974) 71,384 (7,108) 62,255
---------- --------- ----------- -------- ----------
Operating expenses:
Research and development........ 94,717 87,752 106,249 26,394 33,372
Selling, general and
administrative............... 82,775 60,701 62,520 15,061 15,923
Stock compensation expense...... -- -- -- -- 14,696
Other........................... 4,460 -- -- -- --
---------- --------- ----------- -------- ----------
Total operating expenses..... 181,952 148,453 168,769 41,455 63,991
---------- --------- ----------- -------- ----------
Loss from operations.............. (109,259) (238,427) (97,385) (48,563) (1,736)
Interest expense.................. (11,849) (18,075) (36,502) (7,927) (8,768)
Interest and other income......... 1,169 1,000 25,031 1,781 274
---------- --------- ----------- -------- ----------
Loss before income taxes.......... (119,939) (255,502) (108,856) (54,709) (10,230)
Provision for income taxes........ 2,826 824 1,035 277 89
---------- --------- ----------- -------- ----------
Net loss.......................... (122,765) (256,326) (109,891) (54,986) (10,319)
---------- --------- ----------- -------- ----------
Other comprehensive income:
Unrealized gain on investments in
equity securities............... -- -- 16,262 -- 9,124
---------- --------- ----------- -------- ----------
Comprehensive loss................ $ (122,765) $(256,326) $ (93,629) $(54,986) $ (1,195)
========== ========= =========== ======== ==========
Net loss per share -- basic and
diluted (Note 1)................ $ (5.94) $ -- $(58,112.64) $ -- $(1,364.41)
Shares used in per share
calculation -- basic and
diluted......................... 20,677,000 -- 1,891 -- 7,563
</TABLE>
See accompanying notes.
F-3
<PAGE> 99
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
PREFERRED STOCK COMMON STOCK ADDITIONAL INVESTMENTS IN TOTAL
------------------- -------------------- PAID-IN EQUITY ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES DEFICIT (DEFICIT)
---------- ------ ----------- ------ ---------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 25, 1995...... -- -- 25,848,642 $258 $327,616 -- $(283,971) $ 43,903
Issuance of common stock
under stock option plans... -- -- 567,403 6 4,739 -- -- 4,745
Issuance of common stock
under stock purchase
plan....................... -- -- 400,213 4 2,976 -- -- 2,980
Shares canceled resulting
from acquisition by HEA.... -- -- (26,815,958) (268) 268 -- -- --
Net loss..................... -- -- -- -- -- -- (122,765) (122,765)
---------- ---- ----------- ---- -------- ------- --------- ---------
Balance, March 30, 1996...... -- -- 300 -- 335,599 -- (406,736) (71,137)
Exchange of common shares for
Series A Preferred......... 58,208,955 $582 (300) -- (582) -- -- --
Net loss..................... -- -- -- -- -- -- (256,326) (256,326)
---------- ---- ----------- ---- -------- ------- --------- ---------
Balance, December 28, 1996... 58,208,955 582 -- -- 335,017 -- (663,062) (327,463)
Issuance of additional Series
A Preferred to parent in
exchange for debt.......... 29,850,746 298 -- -- 199,702 -- -- 200,000
Issuance of stock under stock
option plan and related
benefits................... -- -- 7,563 -- 46 -- -- 46
Change in unrealized gain on
equity securities.......... $16,262 16,262
Net loss..................... -- -- -- -- -- (109,891) (109,891)
---------- ---- ----------- ---- -------- ------- --------- ---------
Balance, December 27, 1997... 88,059,701 880 7,563 -- 534,765 16,262 (772,953) (221,046)
Stock compensation
reimbursement due from an
affiliate (unaudited)...... -- -- -- -- 2,325 -- -- 2,325
Change in unrealized gain on
equity investments
(unaudited)................ -- -- -- -- -- 9,124 -- 9,124
Net loss (unaudited)......... -- -- -- -- -- -- (10,319) (10,319)
---------- ---- ----------- ---- -------- ------- --------- ---------
Balance, March 28, 1998
(unaudited)................ 88,059,701 $880 7,563 $ -- $537,090 $25,386 $(783,272) $(219,916)
========== ==== =========== ==== ======== ======= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 100
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE THREE THREE
YEAR MONTHS YEAR MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED
MARCH 30, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1996 1996 1997 1997 1998
--------- ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(122,765) $(256,326) $(109,891) $(54,986) $(10,319)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 45,200 47,064 65,642 11,736 15,756
Stock compensation expense................................ -- -- -- -- 14,696
Reserves for lower of cost or market...................... -- 15,194 -- -- --
Change in deferred taxes.................................. 300 -- -- -- --
Loss (gain) on disposal of property, plant and
equipment............................................... 669 700 4,366 (492) 1,312
Gain on sale of subsidiary................................ -- (2,385) -- -- --
Gain on fully reserved note receivable from affiliate..... -- -- (20,000) -- --
Other..................................................... -- (589) (157) (215) --
Changes in assets and liabilities:
Accounts receivable..................................... (12,485) 62,786 (142,860) (43,873) (64,909)
Accounts receivable from affiliates..................... (2,229) (1,822) 378 2,687 2,778
Inventories............................................. (66,255) 45,955 (74,434) (6,926) (8,662)
Prepaid expenses and other assets....................... (2,947) 3,839 687 950 (4,528)
Accounts payable........................................ 18,407 (37,297) 102,108 7,525 75,911
Accounts payable to affiliates.......................... 8,656 4,803 11,563 2,968 14,088
Accrued and other liabilities........................... 637 13,015 15,885 (1,968) (2,482)
--------- --------- --------- -------- --------
Total adjustments........................................... (10,047) 151,263 (36,822) (27,608) 43,960
--------- --------- --------- -------- --------
Net cash provided by (used in) operating activities......... (132,812) (105,063) (146,713) (82,594) 33,641
--------- --------- --------- -------- --------
Cash flows from investing activities:
Proceeds from sale of subsidiary.......................... -- 25,000 -- -- --
Cash received on a note receivable from affiliate......... -- -- 20,000 -- --
Proceeds from maturities of available-for-sale
investments............................................. 11,998 -- -- -- --
Purchase of property, plant and equipment................. (72,655) (53,780) (82,489) (8,789) (8,332)
Proceeds from disposals of property, plant and
equipment............................................... 353 363 609 -- 2,972
Other assets.............................................. (928) (7,599) 621 (2,729) 7,038
--------- --------- --------- -------- --------
Net cash provided by (used) in investing activities....... (61,232) (36,016) (61,259) (11,518) 1,678
--------- --------- --------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of debt, including short-term
borrowings.............................................. 145,595 410,715 319,363 120,000 29,904
Principal payments on debt, including short-term debt..... (3,000) (307,444) (309,784) (34) (68,795)
Proceeds from issuance of common stock, net of issuance of
notes receivable and stock repurchase................... 7,725 -- 46 -- --
Proceeds from intercompany notes issued to parent......... -- -- 200,000 -- --
Net payments under accounts receivable securitization..... -- 16,327 (16,041) (37,804) (48)
--------- --------- --------- -------- --------
Net cash provided by (used in) financing activities....... 150,320 119,598 193,584 82,162 (38,939)
--------- --------- --------- -------- --------
Net decrease in cash and cash equivalents................. (43,724) (21,481) (14,388) (11,950) (3,620)
Cash and cash equivalents at beginning of period.......... 96,518 52,794 31,313 31,313 16,925
--------- --------- --------- -------- --------
Cash and cash equivalents at end of period................ $ 52,794 $ 31,313 $ 16,925 $ 19,363 $ 13,305
========= ========= ========= ======== ========
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest.................................................. $ 9,362 $ 13,444 $ 26,540 $ 5,512 $ 6,272
Income taxes.............................................. 1,801 2,009 1,025 153 298
Income tax refunds........................................ (3,173) -- -- -- --
Supplemental information on noncash investing and financing
activities:
Purchase of property, plant and equipment financed by
accounts payable.......................................... 4,949 8,171 2,670 17,275 8,919
Purchase of property, plant and equipment financed by
capital leases............................................ -- -- 881 142 13
Exchange of Common Stock for Series A Preferred Stock....... -- 582 -- -- --
Exchange of notes payable for Series A Preferred Stock...... -- -- 200,000 -- --
Unrealized gain on equity securities........................ -- -- 16,262 -- 9,124
Stock compensation reimbursement due from an affiliate...... -- -- -- -- 2,325
</TABLE>
See accompanying notes.
F-5
<PAGE> 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Maxtor
Corporation and its wholly-owned subsidiaries (Maxtor or the Company). All
significant intercompany accounts and transactions have been eliminated. Maxtor
Corporation operates as a majority-owned subsidiary of Hyundai Electronics
America (HEA).
FISCAL YEAR
During 1996, the Company changed its fiscal year end to be consistent with
the fiscal year end of HEA. The fiscal year end changed from the last Saturday
of March, the date used in the Company's filing of its Form 10-K with the
Securities and Exchange Commission, to the last Saturday of December conforming
to a 52/53-week year methodology. The fiscal year ended March 30, 1996 comprised
53 weeks. The fiscal year ended December 28, 1996 comprised 39 weeks. The
current year ended December 27, 1997 comprised 52 weeks. The three month periods
ended March 29, 1997 and March 28, 1998 both comprised 13 weeks.
NATURE OF BUSINESS
The Company develops, manufactures and markets hard disk drive products to
customers who sell their products in the personal computer industry. Products
are designed for desktop applications to meet both value and high-performance
needs of customers. Customers include original equipment manufacturers (OEMs),
distributors, and retailers. The Company relies on suppliers for components
including heads, disks and custom integrated circuits. Although printed circuit
board assemblies and head stack assemblies are outsourced, head disk assemblies
are completed by the Company. All the Company's products are manufactured by
Maxtor at its manufacturing facility in Singapore and sold worldwide.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying interim consolidated balance sheet of March 28, 1998 and
the consolidated statements of operations and cash flows for the three month
periods ended March 29, 1997 and March 28, 1998 and the statement of
stockholders' equity (deficit) for the three months ended March 28, 1998,
together with the related notes are unaudited but include all adjustments,
consisting of only normal recurring adjustments, which the Company considers
necessary to present fairly, in all material respects, the consolidated
financial position at March 28, 1998, and the consolidated results of its
operations and cash flows for the periods ended March 29, 1997 and March 28,
1998. Results for the three months ended March 28, 1998 are not necessarily
indicative of results for the entire year.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The actual results with regard to warranty expenditures could have a
material unfavorable impact on the Company if the actual rate of unit failure or
the cost to repair a unit is greater than what the Company has used in
estimating its warranty expense accrual.
Given the volatility of the market for disk drives and for the Company's
products, the Company makes adjustments to the value of inventories based on
estimates of potentially excess and obsolete inventories and negative margin
products after considering forecasted demand and forecasted average selling
prices. However, forecasts are always subject to revisions, cancellations, and
rescheduling. Actual demand will inevitably differ from such anticipated demand
and such differences may have a material impact on the financial statements.
F-6
<PAGE> 102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RISKS AND UNCERTAINTIES
The Company's business entails a number of risks. As is typical in the disk
drive industry, the Company must utilize leading edge components for its new
generation of products which may only be available from a limited number of
suppliers. 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, the availability of supply from its vendors for many semi-custom and custom
integrated circuits, heads, media and other key components. Any de-commitments
from customers for product or delays of components from vendors could have an
adverse impact on the Company's ability to ship products as scheduled to its
customers.
The Company's ultimate parent is Hyundai Electronics Industries Co. Ltd.
(HEI), a Korean corporation. The Korean economy has recently suffered a period
of economic turmoil, which has resulted in the devaluation of the Korean
currency and large volatility in interest rates. A significant portion of the
Company's debt was guaranteed by HEI, and the Company has relied upon the HEI
guarantees. As of June 1, 1998, the Company substituted Hyundai Heavy
Industries, Inc. (HHI) as the guarantor of substantially all of the debt
previously guaranteed by HEI (Note 14). The Company's parent, HEA, also has a
written letter of support from HEI to support operations for it and all of its
subsidiaries through May 31, 2000.
As further described in Note 7, it is reasonably possible that further
deteriorations in the Korean economy and the value of the Korean currency could
have an adverse effect on the ability of the ultimate parent to continue to
guarantee the debt of the Company. While the Company believes that other sources
of credit would be available, and has obtained a commitment from an affiliate
company for certain debt, there is no assurance that such other credit would be
available, either in the amount or at the rates currently available to the
Company.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments, which are purchased
with an original maturity of three months or less, to be cash equivalents.
EQUITY SECURITIES
All equity securities are classified as available-for-sale.
Available-for-sale securities are carried at market value. Unrealized gains and
losses on securities classified as available-for-sale, when material, are
reported as a separate component of stockholders' deficit. Realized gains and
losses on sales of all such investments are included in the results of
operations computed using the specific identification cost method.
INVENTORIES
Inventories are stated at the lower of cost (computed on a first-in,
first-out basis) or market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated on the
straight-line basis over the estimated useful lives of the assets, which
generally range 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.
Upon disposal, the Company removes the asset and accumulated depreciation from
its records and recognizes the related gain or loss in results of operations.
REVENUE RECOGNITION AND PRODUCT WARRANTY
Revenue is recognized upon product shipment. Revenue from sales to certain
distributors and direct retailers 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
F-7
<PAGE> 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
credits for price protection. The Company also provides for the estimated cost
to repair or replace products under warranty at the time of sale. The Company
currently warrants its products against defects in parts and labor 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.
ADVERTISING EXPENSE
Cooperative advertising costs are charged as the related revenue is earned
and other advertising costs are expensed as incurred. Advertising costs were not
significant for the fiscal year ended March 30, 1996, the nine months ended
December 28, 1996, the fiscal year ended December 27, 1997 or the three months
ended March 29, 1997 and March 28, 1998, respectively.
ACCOUNTING FOR INCOME TAXES
The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The Company is required to adjust
its deferred tax liabilities in the period when tax rates or the provisions of
the income tax laws change. Valuation allowances are established to reduce
deferred tax assets to the amounts expected to be realized.
FOREIGN CURRENCY TRANSLATION
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. Net foreign exchange losses included net income
(loss) for the fiscal year ended March 30, 1996, the nine months ended December
28, 1996, the fiscal year ended December 27, 1997 and the three months ended
March 29, 1997 and March 28, 1998 (unaudited) were immaterial.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable and cash
equivalents. 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 funds to financial institutions evaluated as highly
credit-worthy. The Company's products are sold worldwide to original equipment
manufacturers, distributors, and retailers. 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 doubtful accounts is based upon the expected collectibility of all
accounts receivable. One customer accounted for more than 10% of outstanding
trade receivables at March 30, 1996. As of December 27, 1997, the Company had
one customer who accounted for more than 10% of the outstanding trade
receivables. As of March 28, 1998 (unaudited) two customers represented more
than 20% of outstanding trade receivables. If the customers fail to perform
their obligations to the Company, such failures would have adverse effects upon
the Company's financial position, results of operations, cash flows, and
liquidity.
LONG-LIVED ASSETS
The Company reviews property, plant and equipment and other long lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability is
measured by comparison of its carrying amount to future net cash flows the
assets are expected to generate. If such assets are considered to be impaired,
the impairment to be recognized
F-8
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
is measured as the amount by which the carrying amount of the asset exceeds the
present value of the future net cash flows.
STOCK-BASED COMPENSATION
The Company has elected to continue to follow the provisions of APB No. 25,
"Accounting for Stock Issued to Employees," for financial reporting purposes and
has adopted the disclosure only provisions of Statement of Financial Accounting
Standards (SFAS) No. 123. "Accounting for Stock-Based Compensation."
FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES
The Company accounts for its accounts receivable securitization program in
accordance with (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities."
NET LOSS PER SHARE
Net loss per share has been computed in accordance with SFAS 128. Basic net
loss per share is computed using the weighted average common shares outstanding
during the period. Diluted net loss per share is computed using the weighted
average common shares and potentially dilutive securities outstanding during the
period. Potentially dilutive securities are excluded from the computation of net
diluted loss per share for all periods presented since their effect would be
anti-dilutive due to the Company's net losses. Net loss per share information
presented for the year ended December 27, 1997 and three months ended March 28,
1998 (unaudited) is not meaningful due to the very limited number of common
shares outstanding during such periods.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
issued SFAS No 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for disclosure about
operating segments in annual financial statements and selected information in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. This
statement supercedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise." The new standard becomes effective for fiscal years
beginning after December 15, 1997, and requires that comparative information
from earlier years be restated to conform to the requirements of this standard.
The Company is evaluating the requirements of SFAS 131 and the effects, if any,
on the Company's current reporting and disclosures.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 provides guidance on when
costs related to software developed or obtained for internal use should be
capitalized or expensed. The SOP is effective for transactions entered into for
fiscal years beginning after December 15, 1998. The Company has reviewed the
provisions of the SOP and does not believe adoption of this standard will have a
material effect upon its results or operations, financial position or cash
flows.
F-9
<PAGE> 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUPPLEMENTAL FINANCIAL STATEMENT DATA (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 27, 1997 MARCH 28, 1998
----------------- ----------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Inventories:
Raw materials.............................. $ 33,012 $ 48,834 $ 45,323
Work-in-process............................ 15,674 15,177 15,064
Finished goods............................. 32,192 91,301 103,587
--------- --------- ---------
$ 80,878 $ 155,312 $ 163,974
========= ========= =========
Prepaid expenses and other:
Investments in equity securities, at fair
value................................... $ -- $ 16,262 $ 25,386
Prepaid expenses and other................. 5,239 4,552 9,080
--------- --------- ---------
$ 5,239 $ 20,814 $ 34,466
========= ========= =========
Property, plant and equipment, at cost:
Buildings.................................. $ 29,512 $ 32,453 $ 33,945
Machinery and equipment.................... 194,644 220,213 222,790
Furniture and fixtures..................... 13,300 11,374 11,535
Leasehold improvements..................... 12,695 9,012 9,076
--------- --------- ---------
250,151 273,052 277,346
Less accumulated depreciation and
amortization............................... (158,078) (173,716) (180,799)
--------- --------- ---------
Net property, plant and equipment.......... $ 92,073 $ 99,336 $ 96,547
========= ========= =========
Accrued and other liabilities:
Income taxes payable....................... $ 5,088 $ 2,416 $ 2,292
Accrued payroll and payroll-related
expenses................................ 17,159 29,116 23,281
Accrued warranty........................... 20,194 22,716 25,116
Accrued expenses........................... 42,851 21,561 21,555
Advances under securitization.............. 54,386 79,754 86,562
Stock compensation expense................. -- -- 14,696
--------- --------- ---------
$ 139,678 $ 155,563 $ 173,502
========= ========= =========
</TABLE>
3. RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial statements
to conform to current classifications. These reclassifications had no impact on
any prior years or the Company's net assets or results of operations.
4. FINANCIAL INSTRUMENTS
FAIR VALUE DISCLOSURES
The fair values of cash and cash equivalents approximate carrying values
due to the short period of time to maturity. The carrying values of notes
receivable, which are classified in other assets, approximate fair values. The
fair values of the Company's fixed rate debt are estimated based on the current
rates offered to the Company for similar debt instruments having the same
remaining maturities. The fair values of the Company's variable rate debt
approximate carrying values as these instruments are adjusted periodically
during the course of the year at market prices. The fair values of the Company's
convertible subordinated debentures are based on the bid price of the last trade
for the fiscal period ended December 28, 1996 and fiscal year ended December 27,
1997, respectively.
F-10
<PAGE> 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The carrying values and fair values of the Company's financial instruments
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 27, 1997
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 31,313 $ 31,313 $ 16,925 $ 16,925
Notes receivable................................ 11,492 11,492 11,492 11,492
Short and long-term debt:
fixed rates................................... 13,800 13,800 13,800 13,800
variable rates................................ 265,000 265,000 210,570 210,570
debt from parent -- fixed rates............... -- -- 65,000 65,000
Convertible subordinated debentures............. 100,000 68,000 100,000 70,000
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into currency forward contracts to manage foreign
currency exchange risk associated with the Company's manufacturing operations in
Singapore. The Company's policy is to hedge all material transaction 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
$17.3 million, $0 and $0, as of December 28, 1996, December 27, 1997 and March
28, 1998 (unaudited), respectively.
5. INTERNATIONAL MANUFACTURING SERVICES
In May 1996, the Company entered into an agreement to sell a majority
interest in International Manufacturing Services, Inc. (IMS), previously a
wholly owned subsidiary, to certain IMS management and other investors. At
completion of the transaction in June 1996, the Company received $25.0 million
in cash and $20.0 million in notes from IMS, and retained a 24% ownership
interest in IMS. As of December 27, 1997, the Company's ownership interest was
16%. The Company's share of IMS results of operations for the fiscal year ended
December 28, 1996 and the fiscal period ended December 27, 1997 were not
material to the Company's results of operations for either period presented.
6. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment: the design, manufacture
and sale of data storage products for desktop 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
retailers.
During the year ended March 30, 1996, no customer accounted for more than
10% of the Company's revenue. During the nine months ended December 28, 1996,
one customer, SED International accounted for 11% of the Company's revenue.
During the year ended December 27, 1997, two customers, Compaq and Dell,
accounted for more than 21% and 10%, respectively, of the Company's revenue.
The Company's export sales represented 41%, 48% and 40% of total revenue
for the year ended March 30, 1996, the nine months ended December 28, 1996 and
the year ended December 27, 1997, respectively. Approximately 60%, 38% and 57%,
of export sales were to Europe, while 35%, 55%, and 36% of export sales were to
Asia Pacific for the year ended March 30, 1996, the nine months ended December
28, 1996 and year ended December 27, 1997, respectively.
F-11
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Operations outside the United States primarily consist of the manufacturing
plant in Singapore that produces 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 periods is presented in the following
table:
<TABLE>
<CAPTION>
U.S. ASIA PACIFIC ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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) --
---------- ---------- ----------- ----------
Total 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
========== ========== =========== ==========
Nine Months Ended December 28, 1996
Revenue from unaffiliated customers............ $ 751,597 $ 20,058 $ -- $ 771,655
Revenue from affiliated customers.............. 25,712 1,517 -- 27,229
Transfers between geographic locations......... 14,150 918,488 (932,638) --
---------- ---------- ----------- ----------
Total Revenue.................................. $ 791,459 $ 940,063 $ (932,638) $ 798,884
========== ========== =========== ==========
Income (loss) from operations.................. $ (323,061) $ 79,926 $ 4,708 $ (238,427)
========== ========== =========== ==========
Identifiable assets............................ $ 286,084 $ 369,631 $ (341,176) $ 314,539
========== ========== =========== ==========
Year Ended December 27, 1997
Revenue from unaffiliated customers............ $1,384,703 $ 96 $ -- $1,384,799
Revenue from affiliated customers.............. 39,521 -- -- 39,521
Transfers between geographic locations......... 21,886 1,595,189 (1,617,075) --
---------- ---------- ----------- ----------
Total Revenue.................................. $1,446,110 $1,595,285 $(1,617,075) $1,424,320
========== ========== =========== ==========
Income (loss) from operations.................. $ (284,915) $ 187,496 $ 34 $ (97,385)
========== ========== =========== ==========
Identifiable assets............................ $ 498,778 $ 569,207 $ (512,513) $ 555,472
========== ========== =========== ==========
</TABLE>
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.
F-12
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LINES OF CREDIT, DEBT AND CAPITAL LEASE OBLIGATIONS
Lines of credit, debt and capital lease obligations consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27, MARCH 28,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
5.75% Convertible Subordinated Debentures due March 1,
2012...................................................... $100,000 $100,000 $ 95,000
Short-term borrowings; interest payable at variable rates
ranging from 6.24% to 7.88% per annum..................... 136,000 80,967 70,871
Short-term borrowings from parent; interest payable at rate
of 10.29%................................................. -- 65,000 55,000
Short-term borrowing; interest payable at a rate of 6.52%;
collateralized by equipment............................... 13,800 13,800 --
Long-term borrowing, interest payable at variable rates
ranging from 6.18% to 6.24% per annum..................... 129,000 129,000 129,000
Other obligations........................................... 109 603 608
-------- -------- --------
378,909 389,370 350,479
Less amounts due within one year............................ 149,800 165,057 131,159
-------- -------- --------
Due after one year.......................................... $229,109 $224,313 $219,320
======== ======== ========
</TABLE>
Future aggregate maturities as of December 27, 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING (IN THOUSANDS)
------------------ --------------
<S> <C>
1998............................................. $165,057
1999............................................. 134,313
2000............................................. 5,000
2001............................................. 5,000
2002............................................. 5,000
Later years...................................... 75,000
--------
Total....................................... $389,370
========
</TABLE>
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 12.5 shares per
each $1,000 principal amount of debentures (equivalent to a conversion price of
$80 per common 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 acquisition by HEA under the Agreement and Plan of Merger, dated
November 2, 1995, between HEA and the Company, Debenture holders were entitled
to receive 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, provides
that each $1,000 principal amount of Debentures may be convertible to 12.5
shares of common stock of the Company (equivalent to a conversion price of $80
per share), which is immediately converted into a cash payment of $167.50.
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
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 $5.0 million 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 March 30, 1996, the Company entered into an accounts receivable
securitization program with Citicorp Securities, Inc. Under this program the
Company could sell its qualified trade accounts receivable up to $100.0 million
on a non-recourse basis. The face amount of the eligible receivables are
discounted based on the Corporate Receivables Corporation commercial paper rate,
5.85% as of December 27, 1997 and 5.60% as of March 28, 1998 (unaudited) plus
commission and is subject to a 10% retention. As of December 27, 1997,
F-13
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$79.8 million of advances related to sales of accounts receivable were included
in accrued and other liabilities. As of March 28, 1998, this amount was $86.6
million (unaudited). The Company's asset securitization program was subject to
certain conditions, among which was a condition that all of HEI's long-term
public senior debt securities achieve a specified rating. This condition was not
met in February 1998, and the Company obtained waivers of this condition through
April 8, 1998.
The Company completed a new asset securitization program dated as of April
8, 1998 (the "New Program") arranged by Citicorp to replace the existing
program. Under the New Program, the Company sells all of its trade accounts
receivable through a special purpose vehicle with a purchase limit of $100.0
million on a non-recourse basis, subject to increase to $150.0 million, upon the
fulfillment of the conditions subsequent described below. On April 8, 1998, the
uncollected purchase price under the existing program, in the amount of
approximately $100.0 million, was transferred to represent the purchased
interest of Citicorp's Corporate Receivables Corporation ("CRC") under the New
Program. Continuance of the New Program is subject to certain conditions,
including a condition that all of the long-term public senior debt securities of
Hyundai Heavy Industries, Inc. ("HHI"), an affiliated company, achieve a
specified rating. In addition, the New Program remains subject to certain
conditions subsequent related to obtaining appropriate waivers as may be
necessary from lenders of the Company's credit facilities, or effecting a cure
of any outstanding defaults under such credit facilities of the Company and
obtaining a performance guarantee from HHI of the obligations of the Company
under the New Program. The Company must satisfy these conditions subsequent
within 30 days of receiving undertaking documents from Citicorp and presently
believes that it will be able to successfully satisfy these conditions.
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, which was fully utilized as of December 27, 1997. This
credit facility was guaranteed by HEI and all outstanding amounts of principal
and accrued interest were paid in January 1998.
On April 10, 1997, the Company obtained a $150.0 million intercompany line
of credit from HEA. This line of credit allows for draw downs up to $150.0
million and interest is payable quarterly. As of December 27, 1997, $65.0
million was outstanding under this facility. In March 1998, this line was
reduced to $100.0 million and as of March 28, 1998, $55.0 million was
outstanding under this facility (unaudited).
On August 29, 1996, the Company established two uncollateralized, revolving
lines of credit totaling $215.0 million (the "Facilities") through Citibank,
N.A. and syndicated among fifteen banks. In September 1996, the Facilities were
increased $10.0 million to a total of $225.0 million. The Facilities are
guaranteed by HEI and a total of $129.0 million of the Facilities is a three
year committed Facility that is used primarily for general operating purposes
and bears interest at a rate based on LIBOR plus 0.53%. As of March 28, 1998,
$129.0 million of borrowings under this line were outstanding. A total of $96.0
million of the Facility is a 364-day committed facility, renewable annually at
the option of the syndicate banks. On August 28, 1997, this Facility was amended
and reduced to $31.0 million. The Facility is primarily for general operating
purposes and bears interest at a rate based on LIBOR plus 0.53%. As of March 28,
1998, $31.0 million of borrowings under this line of credit were outstanding
(unaudited).
The Company had credit facilities amounting to $50.8 million in the
aggregate from three banks as of December 27, 1997. The facilities, which are
guaranteed by HEI, are used primarily for general operating purposes and bear
interest at rates ranging from 6.27% to 7.88%. In January 1998, one $10.0
million facility was retired and all principal, owing has been paid. As of March
28, 1998, $40.0 million of borrowings under this line of credit were outstanding
(unaudited).
HEI was the guarantor of an aggregate $170.0 million outstanding under the
Company's credit facilities as of December 27, 1997 and March 28, 1998
(unaudited). HEI has various obligations as guarantor, including the
satisfaction of certain financial covenants. Due to the economic conditions in
the Republic of Korea and a significant recent devaluation of the Korean won
versus the U.S. dollar, the Company received notice on April 9, 1998 from the
administrative agent for the Facilities that HEI is not in compliance with
F-14
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
certain financial covenants. Due to HEI's inability, as guarantor, to comply
with such financial covenants, there is currently a technical default under the
terms of the guaranty which constitutes a default under the Company's credit
facilities guaranteed by HEI and due to certain cross-default provisions a
default under a credit facility with $30 million outstanding as of December 27,
1997 and March 28, 1998 (unaudited) not guaranteed by HEI. The Company had
requested waivers of the non-compliance for the year ended December 27, 1997,
and had obtained a commitment from an affiliated company to provide an
equivalent long-term facility in the event the waivers were not successfully
obtained. Consequently, the Company did not reclassify the debt outstanding
under the credit facilities as a current liability. As of June 1, 1998, the
Company obtained waivers for $160.0 million of $170.0 million of the debt which
was in default and substituted HHI as the guarantor.
8. 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 December 27, 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING (IN THOUSANDS)
------------------ --------------
<S> <C>
1998........................................... $10,602
1999........................................... 8,401
2000........................................... 5,261
2001........................................... 4,610
2002........................................... 1,735
Later years.................................... 8,556
-------
Total........................................ $39,165
=======
</TABLE>
The above commitments extend through fiscal year 2016. Rental expense was
approximately $12.0 million for the year ended March 30, 1996, $8.9 million for
the nine months ended December 28, 1996 and $10.7 million for the year ended
December 27, 1997.
LEGAL PROCEEDINGS
The Company currently is involved in a dispute with StorMedia Incorporated
("StorMedia"), which arises out of an agreement among the Company, StorMedia and
HEI which became effective on November 17, 1995 (the "StorMedia Agreement").
Pursuant to the StorMedia Agreement, StorMedia agreed to supply disk media to
the Company. StorMedia's disk media did not meet the Company's specifications
and functional requirements as required by the StorMedia Agreement and the
Company ultimately terminated the StorMedia Agreement. After a class action
securities lawsuit was filed against StorMedia by certain of its shareholders in
September 1996 which alleged, in part, that StorMedia failed to perform under
the StorMedia Agreement, StorMedia sued HEI, Mong Hun Chung (HEI's chairman),
Dr. Chong Sup Park (HEA's President and the individual who signed the StorMedia
Agreement on behalf of the Company) and K.S. Yoo (the individual who signed the
StorMedia Agreement on behalf of HEI) (collectively the " Original Defendants")
in the U.S. District Court for the Northern District of California (the "Federal
Suit"). In the Federal Suit, StorMedia alleged that at the time HEI entered into
the StorMedia Agreement, it knew that it would not and could not purchase the
volume of products which it committed to purchase, and that failure to do so
caused damages to StorMedia in excess of $206 million.
In December 1996, the Company filed a complaint against StorMedia and
William Almon (StorMedia's Chairman and Chief Executive Officer) in a Colorado
state court seeking approximately $100 million in damages and alleging, among
other claims, breach of contract, breach of implied warranty of fitness and
fraud under the StorMedia Agreement (the "Colorado Suit"). This proceeding was
stayed pending resolution of the Federal Suit. The Federal Suit was permanently
dismissed early in February 1998. On February 24, 1998,
F-15
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
StorMedia filed a new complaint in Santa Clara County Superior Court for the
State of California for $206 million, alleging fraud and deceit against the
Original Defendants and negligent misrepresentation against HEI and the Company
(the "California Suit").
The Company believes that it has meritorious defenses against the claims
alleged by StorMedia and intends to defend itself vigorously. However, due to
the nature of the litigation and because the pending lawsuits are in the very
early pre-trial stages, the Company cannot determine the possible loss, if any,
that may ultimately be incurred either in the context of a trial or as a result
of a negotiated settlement. The litigation could result in significant diversion
of time by the Company's technical personnel, as well as substantial
expenditures for future legal fees. After consideration of the nature of the
claims and facts relating to the litigation, including the results of
preliminary discovery, the Company's management believes that the resolution of
this matter will not have a material adverse effect on the Company's business,
financial condition or results of operations. However, the results of these
proceedings, including any potential settlement, are uncertain and there can be
no assurance that they will not have a material adverse effect on the Company's
business, financial position and results of operations.
The Company has been notified of certain other claims, including claims of
patent infringement. While the ultimate outcome of these claims and the claims
described above is not determinable, it is reasonably possible that resolution
of these matters could have a material impact on the financial condition,
results of operations or cash flows of the Company. No amounts related to any
action have been accrued in the accompanying financial statements.
9. RELATED PARTY TRANSACTIONS
In January 1996, the Company became a wholly owned subsidiary of HEA.
Subsequently, 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 March
1, 2012, remain publicly traded.
HEI has guaranteed certain debts of the Company (Note 7) and has committed
to provide the financial support necessary for the Company to continue
operations on an ongoing basis.
Revenue and related cost of revenue from affiliates consists principally of
product sales to HEI.
The cost of revenue includes certain component parts purchased from MMC
Technology, Inc., an affiliated company, amounting to $15.5 million during the
year ended December 31, 1997 and $27.6 million during the three months ended
March 28, 1998(unaudited).
10. STOCKHOLDERS' DEFICIT
PREFERRED STOCK
The Company has one class of $0.01 par value preferred stock with
95,000,000 shares authorized, designated as Series A Preferred Stock. Each share
of preferred stock is convertible, at the option of the holder, to shares of the
Company's common stock on a two for one basis, subject to adjustment under
certain circumstances pursuant to anti-dilution provisions. The preferred stock
automatically converts to common stock upon the earlier of the time the consent
of at least a majority of the outstanding Series A Preferred Stock subject to
such conversion is obtained, or the closing of the sale of the Corporation's
securities pursuant to a firm commitment, underwritten public offering. The
holders of preferred shares are entitled to one vote for each share of common
stock into which the preferred stock is convertible.
Holders of Series A Preferred Stock are entitled to dividends, when and as
declared by the Board of Directors, at an annual rate of $0.40 per share.
Dividends are noncumulative, and to date, no dividends have been declared or
paid by the Company.
F-16
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Series A Preferred Stock has a liquidation preference of $6.70 per
share, plus any declared but unpaid dividends on such shares.
In June 1996, the Company entered into an exchange agreement with HEA
whereby HEA exchanged 300 shares of Common Stock for 58,208,955 shares of Series
A Preferred Stock. As of December 27, 1997, 88,059,701 shares of Series A
Preferred Stock and 7,563 shares of Common Stock, were issued and outstanding.
As of December 27, 1997 all outstanding shares of Series A Preferred Stock were
held by HEA and all outstanding Common Stock, issued pursuant to the Corporation
1996 Stock Option Plan, were held by three individuals.
At the time of the acquisition by HEA, the Company canceled its employee
stock purchase plan and stockholder rights plan.
On December 12, 1997 the Company entered into an exchange with HEA where
HEA exchanged $200.0 million of debt for 29,850,746 shares of Series A Preferred
Stock.
STOCK OPTIONS
Effective as of the acquisition by HEA, the Company's 1988, 1992, 1995
Stock Option Plans and the 1986 and 1996 Outside Directors Stock Option Plans
were terminated and were subsequently replaced by the 1996 Stock Option Plan
("the Plan"). The Plan was approved by the Board in May 1996 and provides for a
maximum of 5,136,084 shares to be reserved for grants. Options under the Plan
expire ten years from the date of grant. On February 25, 1998, the Board
approved an additional one million common shares for issuance under the Plan.
The Plan generally provides for non-qualified stock options and incentive
stock options to be granted to eligible employees, consultants, affiliates 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. The Board or an executive
committee appointed by the Board also approves other terms such as number of
shares granted and exercisability thereof. 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 of the first anniversary date of
the vest date and 6.25% each quarter thereafter. The vesting schedule for new
participants begins February 1, 1996 or hiring date, whichever is later.
The Company has (i) the right to repurchase any vested shares at the
greater of the exercise price or fair market value upon termination of service
by the holder, and (ii) has a 90-day right of first refusal whereby the Company
may repurchase all shares held by the holder on the same terms and at the same
price as offered by a third party (the "Company's Repurchase Rights"). The
holder must give the Company written notice prior to any proposed transfer.
In the event that the Company has not completed an initial public offering
("IPO") within six months of the date it reaches an "IPO Trigger Date", the
Company is required to purchase all the Common Stock acquired by participants
under the Plan, if tendered, at fair market value (the "Pseudo-IPO Purchase").
The IPO trigger date is the date, on or before February 1, 2001, on which all of
the following have occurred: (a) the Company has a positive net income for four
consecutive quarters, (b) the fair market value of the Company as determined by
an independent appraisal equals or exceeds $700.0 million, and (c) the Company
receives the written opinion of a nationally recognized investment banking firm
stating that the Company may undertake an underwritten IPO of the Company's
common stock.
The Company adopted an Amended and Restated 1996 Option Plan in February
1998 to remove the Pseudo-IPO Purchase, the repurchase rights and rights of
first refusal, which had given rise to variable accounting, and offered and
modified employee option agreements in April 1998 for the majority of employees
which had previously held variable options to achieve fixed-award accounting. To
comply with variable plan accounting, the Company recorded compensation expense
related to the difference between the estimated fair market value of its stock
as of March 28, 1998 (unaudited) and the stated value of the Company's options.
F-17
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Compensation cost was reflected in accordance with Financial Accounting
Standards Board Interpretation No. 28, "Accounting for Stock Appreciation Rights
and Other Variable Stock Option or Award Plans."
The following table summarizes option activity through March 28, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------
PRICE PER SHARE
SHARES AND
AVAILABLE WEIGHTED AVERAGE AGGREGATE
FOR GRANT SHARES PRICE PER SHARE VALUE
---------- ---------- ----------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at March 25, 1995........... 1,590,256 3,076,483 $11.98 $36,833
Options granted..................... (970,274) 970,273 9.50 9,226
Options exercised................... -- (567,403) 8.36 (4,745)
Options canceled.................... 496,431 (496,431) 11.12 (5,519)
Plan shares expired................. (75,943) -- -- --
Options canceled due to
acquisitions...................... (1,040,470) (2,982,922) 12.00 (35,795)
---------- ---------- ------ -------
Balance at March 30, 1996........... -- -- -- --
Shares reserved..................... 5,136,084 -- -- --
Options granted..................... (4,661,099) 4,661,099 6.00 27,966
Option canceled..................... 1,108,349 (1,108,349) 6.00 (6,650)
---------- ---------- ------ -------
Balance at December 28, 1996........ 1,583,334 3,552,750 6.00 21,316
Options granted..................... (1,622,375) 1,622,375 6.00 9,735
Options exercised................... -- (7,563) 6.00 (46)
Option canceled..................... 759,645 (759,645) 6.00 (4,558)
---------- ---------- ------ -------
Balance at December 27, 1997........ 720,604 4,407,917 6.00 26,447
Shares reserved (unaudited)......... 1,000,000 -- -- --
Options granted (unaudited)......... (302,340) 302,340 6.00 1,814
Options cancelled (unaudited)....... 63,439 (63,439) 6.00 (381)
---------- ---------- ------ -------
Balance at March 28, 1998
(unaudited)....................... 1,481,703 4,646,818 $ 6.00 $27,880
========== ========== ====== =======
</TABLE>
There were no shares vested as of March 30, 1996 and December 28, 1996 and
1,229,081 shares vested as of December 27, 1997 at a weighted average exercise
price of $6.00. There were 7,563 shares outstanding subject to repurchase as of
December 27, 1997 and no shares outstanding subject to repurchase as of March
30, 1996 and December 28, 1996. As of March 28, 1998, 1,669,871 shares were
vested and there were 7,563 shares outstanding subject to repurchase
(unaudited).
Under SFAS No. 123, the Company is required to calculate the pro forma fair
market value of options granted and report the impact that would result from
recording the compensation expense. Pro forma net loss for the nine months ended
December 28, 1996 and the year ended December 27, 1997 is set forth in the table
below. Comparable information for the year ended March 30, 1996 is not presented
due to the termination of all formerly existing options pursuant to the January
1996 acquisition by HEA.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 28, 1996
------------------------
AS REPORTED PRO FORMA
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net Loss....................................... $256,326 $257,488
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 27, 1997
------------------------
AS REPORTED PRO FORMA
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net Loss....................................... $109,891 $111,613
</TABLE>
F-18
<PAGE> 114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The pro forma net loss disclosures made above are not necessarily
representative of the effects on pro forma net income (loss) for future years as
options granted typically vest over several years and additional option grants
are expected to be made in future years.
Pro forma compensation expense resulting from stock options is to be based
upon fair value at the date of grant. To calculate this fair value, the Company
has elected to apply the Black-Scholes pricing model which is one of the
currently accepted models recognized by SFAS 123.
To compute the estimated grant date fair market value of the Company's
stock option grants for 1996 and 1997, the following weighted-average
assumptions were used:
<TABLE>
<CAPTION>
GROUP A GROUP A GROUP B GROUP B
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Risk-free interest rate................................ 6.14% 5.69% 6.21% 6.02%
Weighted average expected life......................... 4 years 4 years 5 years 5 years
</TABLE>
No dividend yield and price volatility are assumed because the Company's
equity securities are not traded publicly.
The weighted average expected life was calculated based on the vesting
period and the exercise behavior of each subgroup. Group A represents higher
paid participants who tend to exercise prior to the vesting period to take
advantage of tax laws, and Group B represents all other participants. The
risk-free interest rate was calculated in accordance with the grant date and
expected life calculated for each subgroup.
The following table summarizes information for stock options outstanding at
December 27, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$6.00 4,407,917 8.81 $6.00 1,229,081 $6.00
</TABLE>
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
-----------------------------------------
MARCH 30, DECEMBER 28, DECEMBER 27,
1996 1996 1997
--------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Foreign................................................. $2,526 $1,124 $1,035
Deferred:
Foreign................................................. 300 (300) --
------ ------ ------
Total................................................... $2,826 $ 824 $1,035
====== ====== ======
</TABLE>
F-19
<PAGE> 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the U.S. statutory rate of 35% to the loss before income taxes for the twelve
months ended March 30, 1996, the nine months ended December 28, 1996, and the
twelve months ended December 27, 1997. The principal reasons for this difference
are as follows:
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
-----------------------------------------
MARCH 30, DECEMBER 28, DECEMBER 27,
1996 1996 1997
--------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit at U.S. statutory rate...................... $(41,982) $(89,442) $(38,100)
Tax savings from foreign operations..................... (30,757) (27,104) (63,487)
Repatriated foreign earnings absorbed by current year
losses................................................ 11,624 -- --
U.S. loss providing current tax benefit................. 27,325 52,722 100,748
Valuation of temporary differences...................... 36,550 64,492 2,361
Other................................................... 66 156 (487)
-------- -------- --------
Total................................................... $ 2,826 $ 824 $ 1,035
======== ======== ========
</TABLE>
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 27,
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Inventory reserves and accruals.................... $ 16,211 $ 8,975
Depreciation....................................... 5,423 6,149
Sales related reserves............................. 10,836 11,006
Net operating loss carryforwards................... 152,519 218,718
Tax credit carryforwards........................... 18,252 19,335
Capitalized research and development............... 77,466 102,049
Notes receivable reserve........................... 7,561 1,220
Other.............................................. 2,496 10,965
------------ ---------
Total deferred tax assets.......................... 290,764 378,417
Valuation allowance for deferred tax assets........ (251,464) (289,832)
------------ ---------
Net deferred tax assets............................ $ 39,300 $ 88,585
============ =========
Deferred tax liabilities:
Unremitted earnings of certain foreign entities.... $ 39,300 $ 88,585
------------ ---------
Total deferred tax liabilities..................... $ 39,300 $ 88,585
============ =========
</TABLE>
Pre-tax income from foreign operations was approximately $95.9 million,
$79.0 million and $86.0 million for the twelve months ended March 30, 1996, nine
months ended December 28, 1996 and twelve months ended December 27, 1997,
respectively. The Company currently enjoys a tax holiday for its operations in
Singapore that has been extended until June 30, 2003.
During the year ended December 27, 1997, the valuation allowance for
deferred tax assets increased by $38.4 million.
At December 27, 1997, for federal income tax purposes, the Company had net
operating loss carryforwards of $616.7 million and tax credit carryforwards of
approximately $18.8 million 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 had undergone such an ownership change. Consequently,
utilization of approximately $253.0 million of net
F-20
<PAGE> 116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
operating loss carryforwards and the deduction equivalent of approximately $18.3
million of tax credit carryforwards will be limited to approximately $22.4
million per year.
The acquisition of the Company by HEA resulted in the Company becoming part
of the HEA consolidated group for federal income tax purposes during January
1996. As a member of the HEA consolidated group, the Company is subject to a tax
allocation agreement. For financial reporting purposes, however, Company's tax
loss has been computed on a separate tax return basis, and, as such, Company has
not recorded any tax benefit in its financial statements for the amount of the
net operating loss included in the HEA consolidated income tax return.
12. NET LOSS PER SHARE:
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted net (loss)
per share calculations is provided as follows (in thousands, except share and
per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED YEAR ENDED THREE MONTHS
MARCH 30, DECEMBER 28, DECEMBER 27, ENDED
1996 1996 1997 MARCH 28, 1998
------------- ----------------- ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NUMERATOR -- BASIC AND DILUTED
Net loss...................... $ (122,765) $(256,326) $ (109,891) $ (10,319)
============= ========= =========== ==========
Net loss available to common
stockholders................ $ (122,765) $ 256,326) $ (109,891) $ (10,319)
============= ========= =========== ==========
DENOMINATOR
Basic weighted average common
shares outstanding.......... 20,677,000 -- 1,891 7,563
Effect of dilutive
securities.................. -- -- -- --
------------- --------- ----------- ----------
Diluted weighted average
common shares............... 20,677,000 -- 1,891 7,563
============= ========= =========== ==========
Basic and diluted net loss per
share (See Note 1).......... $ (5.94) $ -- $(58,112.64) $(1,364.41)
============= ========= =========== ==========
</TABLE>
The following contingently issuable shares are excluded in the calculation
of diluted shares outstanding as their effects would be antidilutive:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED YEAR ENDED THREE MONTHS ENDED
MARCH 30, DECEMBER 28, DECEMBER 27, MARCH 28,
1996 1996 1997 1998
---------- ----------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Stock options.................. -- 3,552,000 4,408,000 4,647,000
Convertible subordinated
debentures................... 1,250,000 1,250,000 1,250,000 1,188,000
Convertible preferred stock.... -- 29,104,000 60,697,000 88,060,000
</TABLE>
13. EMPLOYEE BENEFIT PLAN:
The Company maintains a retirement and deferred savings plan for its
employees (the "401(k) Plan") that is intended to qualify as a tax-qualified
plan under the Code. The 401(k) Plan provides that each participant may
contribute up to 15% of his or her pre-tax gross compensation (up to a statutory
limit). Under the 401(k) Plan, the Company may make discretionary contributions.
The Company's contributions to the 401(k) Plan for the fiscal periods ended
March 30, 1996 and December 28, 1996 and December 27, 1997 were $600,000, $1.2
million, and $1.6 million, respectively.
F-21
<PAGE> 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS:
Reverse Stock Split
On May 29, 1998, the Company's Board of Directors approved a one-for-two
reverse split of the Company's outstanding common stock, which will be made
effective upon the Company's filing of an amended and restated certificate of
incorporation in Delaware. All references in the financial statements to the
number of the Company's common shares and price per share amounts, as well as
the conversion ratio of preferred shares, have been retroactively restated to
reflect the reverse split. The Board of Directors also approved the increase of
the Company's authorized common stock to 250,000,000 shares.
Debt Waivers
On June 2, 1998, the Company received waivers of default from various
lenders regarding an aggregate of $160.0 million of $170.0 million in borrowings
subject to guarantees by HEI (Note 7). In exchange for the waivers, the Company
substituted Hyundai Heavy Industries, Inc. (HHI) for HEI as the guarantor.
1998 Restricted Stock Plan (unaudited)
On May 29, 1998, the Company adopted the 1998 Restricted Stock Plan which
provides for awards of shares of common stock to employees. Restricted stock
awarded under this plan vests three years from the date of grant and are subject
to forfeiture in the event of termination of employment with the Company. The
Company has granted 390,000 shares of common stock under this plan.
F-22
<PAGE> 118
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Maxtor Corporation:
We have audited the consolidated financial statements and the financial
statement schedule of Maxtor Corporation (a subsidiary of Hyundai Electronics
America) listed in the index on page F-1 of this Form S-1 as of December 28,
1996 and December 27, 1997, and for the nine month period ended December 28,
1996 and the year ended December 27, 1997. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Maxtor
Corporation as of December 28, 1996 and December 27, 1997, and the consolidated
results of its operations and its cash flows for the nine month period ended
December 28, 1996 and the year ended December 27, 1997, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As discussed in Note 1 to the financial statements, the Company's ultimate
parent, Hyundai Electronics Industries, Co., LTD., (HEI) is located in the
Republic of Korea. The Republic of Korea has recently experienced volatility in
its currency and interest rates which have affected the operations of most
Korean companies, including HEI. HEI has provided certain financial support to
the Company in the past and is a guarantor of the Company's debt.
COOPERS & LYBRAND L.L.P.
San Jose, California
February 3, 1998, except for
Notes 7 and 10 for which
the date is April 9, 1998
Note 14, and the ninth
paragraphs of Notes 1 and 7,
for which date is June 3, 1998.
The accompanying consolidated financial statements give effect to a reverse
stock split on a one-for-two basis of the Company's common stock which will
occur upon filing of an amended and restated certificate of incorporation in
Delaware. The above opinion is in the form which will be signed by Coopers &
Lybrand L.L.P. upon completion of such reverse stock split described in Note 14
of notes to consolidated financial statements and assuming that from the date of
June 3, 1998 to the date of such completion of such filing, no other material
events have occurred that would affect the accompanying consolidated financial
statements or required disclosure therein.
F-23
<PAGE> 119
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Maxtor Corporation
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Maxtor Corporation (a
wholly-owned subsidiary of Hyundai Electronics America) for the year ended March
30, 1996. Our audit also included the financial statement schedule for the year
ended March 30, 1996 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Maxtor Corporation for the year ended March 30, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule for the year ended March 30, 1996, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
April 25, 1996
except for the first paragraph of the
"Subsequent Event" note
as to which this date is June 3, 1998
The foregoing report is in the form that will be signed upon effectiveness of
the 1 for 2 reverse stock split described in Note 14 to the consolidated
financial statements.
/s/ ERNST & YOUNG LLP
San Jose, California
June 4, 1998
F-24
<PAGE> 120
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 25
Relationship Between the Company and
Hyundai............................. 26
Use of Proceeds....................... 32
Dividend Policy....................... 32
Capitalization........................ 33
Dilution.............................. 34
Selected Consolidated Financial
Data................................ 35
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 36
Business.............................. 52
Management............................ 66
Certain Transactions.................. 75
Principal and Selling Stockholders.... 78
Description of Capital Stock.......... 79
Shares Eligible for Future Sale....... 84
Certain United States Tax Consequences
to Holders of Common Stock.......... 85
Underwriting.......................... 88
Legal Matters......................... 91
Experts............................... 91
Additional Information................ 91
Glossary.............................. 93
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------
Until , 1998 (25 days after the commencement of the offering), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
======================================================
======================================================
SHARES
MAXTOR CORPORATION
COMMON STOCK
[MAXTOR LOGO]
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
HAMBRECHT & QUIST
LEHMAN BROTHERS
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY
SECURITIES LLC
REPRESENTATIVES OF THE UNDERWRITERS
======================================================
<PAGE> 121
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS SUBJECT TO COMPLETION, DATED , 1998
SHARES
LOGO
COMMON STOCK
Of the shares of Common Stock, par value $0.01 per share (the
"Common Stock") of Maxtor Corporation ("Maxtor" or the "Company") offered
hereby, shares are being offered by the U.S. Underwriters (as
defined) in the United States and Canada (the "U.S. Offering") and
shares are being offered by the International Underwriters (as defined) in a
concurrent offering outside the United States and Canada (the "International
Offering" and, together with the U.S. Offering, the "Offerings"), subject to
transfers between the U.S. Underwriters and the International Underwriters
(collectively the "Underwriters"). The initial public offering price and the
aggregate underwriting discount per share will be identical for the U.S.
Offering and the International Offering. The closing of the International
Offering is conditioned upon the closing of the U.S. Offering and vice versa.
See "Underwriting."
Of the shares of the Common Stock offered hereby,
shares are being sold by the Company and shares are being sold by
Hyundai Electronics America ("HEA" or the "Selling Stockholder"). See "Principal
and Selling Stockholders." The Company will not receive any of the proceeds from
the sale of shares of Common Stock by HEA. Upon completion of the Offerings,
HEA, which is a majority-owned subsidiary of Hyundai Electronics Industries Co.,
Ltd. ("HEI"), a corporation organized under the laws of the Republic of Korea,
will own approximately % ( % if the Underwriters' over-allotment options are
fully exercised) of the outstanding shares of the Common Stock. See "Risk
Factors -- Control by and Dependence on HEA."
Prior to the Offerings, there has not been a public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $ and $ per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. The Company intends to apply to have the Common Stock
approved for quotation on the Nasdaq National Market under the proposed symbol
" ."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
=====================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
- ---------------------------------------------------------------------------------------------------------------------
Per Share $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Total(3) $ $ $ $
=====================================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $ , payable by the Company.
(3) The Company and the Selling Stockholders have granted the U.S. Underwriters
and the International Underwriter, 30-day options to purchase up to
and additional shares of Common Stock,
respectively, solely to cover over-allotment, if any. If such options are
exercised in full, the total Price to Public, Underwriting, Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholder will be
$ , $ , , and $ , respectively.
------------------------
The shares of Common Stock are being offered by the several International
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for the
shares of Common Stock offered hereby will be available for delivery on or about
, 1998, at the office of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001.
------------------------
SALOMON SMITH BARNEY INTERNATIONAL
HAMBRECHT & QUIST
LEHMAN BROTHERS
MERRILL LYNCH INTERNATIONAL
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1998
<PAGE> 122
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "International Underwriting Agreement") among the Company, the Selling
Stockholder and each of the underwriters named below (the "International
Underwriters"), for whom Smith Barney Inc., Hambrecht & Quist LLC, Lehman
Brothers International (Europe), Merrill Lynch International and NationsBanc
Montgomery Securities LLC are acting as representatives (the "International
Representatives"), the Company and the Selling Stockholder have agreed to sell
to each of the International Underwriters and each of the International
Underwriters has severally agreed to purchase from the Company and the Selling
Stockholder the aggregate number of shares of Common Stock set forth opposite
its name in the table below.
<TABLE>
<CAPTION>
NUMBER OF
COMMON
INTERNATIONAL UNDERWRITERS STOCK
-------------------------- ------------
<S> <C>
Smith Barney Inc.......................................
Hambrecht & Quist LLC..................................
Lehman Brothers International (Europe).................
Merrill Lynch International............................
NationsBanc Montgomery Securities LLC..................
[Other International Underwriters].....................
---------
Total........................................
=========
</TABLE>
The International Underwriting Agreement provides that the obligations of
the International Underwriters to purchase the shares of Common Stock listed
above are subject to certain conditions set forth therein. The International
Underwriters are committed to purchase all of the shares of Common Stock agreed
to be purchased by the International Underwriters pursuant to the International
Underwriting Agreement (other than those covered by the over-allotment options
described below), if any shares of Common Stock are purchased. In the event of
default by any International Underwriter, the International Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
the non-defaulting International Underwriters may be increased or the
International Underwriting Agreement may be terminated.
The International Representatives have advised the Company and the Selling
Stockholder that the International Underwriters propose initially to offer such
shares of Common Stock to the public at the initial public offering price
thereof set forth on the cover page of this Prospectus, and to certain dealers
at such price less a discount not in excess of $. per share. The International
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $. per share on sales to certain other dealers. After the initial public
offering of the shares of Common Stock, the public offering price and such
discounts may be changed.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the initial public offering price set
forth on the cover page hereof.
The Company and the Selling Stockholder also have entered into an
underwriting agreement (the "U.S. Underwriting Agreement") with the U.S.
Underwriters named therein, for whom Smith Barney Inc., Hambrecht & Quist LLC,
Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
NationsBanc Montgomery Securities LLC are acting as representatives (the "U.S.
Representatives" and, together with the International Representatives, the
"Representatives"), providing for the concurrent offer and sale of
of the shares of Common Stock in the United States and Canada.
The closing with respect to the sale of the shares of Common Stock pursuant
to the International Underwriting Agreement is a condition to the closing with
respect to the sale of the shares of Common Stock pursuant to the U.S.
Underwriting Agreement, and the closing with respect to the sale of the shares
of Common Stock pursuant to the U.S. Underwriting Agreement is a condition to
the closing with respect to the sale of the shares of Common Stock pursuant to
the International Underwriting Agreement. The initial public
88
<PAGE> 123
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
offering price and underwriting discount per share of Common Stock for the
International Offering and the U.S. Offering will be identical.
Each International Underwriter has severally agreed that, as part of the
distribution of the shares of Common Stock by the International Underwriters,
(i) it is not purchasing any shares of Common Stock for the account of any
United States or Canadian Person, (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any shares of Common Stock or distribute
any Prospectus to any person in the United States or Canada, or to any United
States or Canadian Person and (iii) any dealer to whom it may sell any shares of
Common Stock will represent that it is not purchasing for the account of any
United States or Canadian Person and agree that it will not offer or resell,
directly or indirectly, any shares of Common Stock in the United States or
Canada, or to any United States or Canadian Person or to any other dealer who
does not so represent and agree.
Each U.S. Underwriter has severally agreed that, as part of the
distribution of the shares of Common Stock by the U.S.
Underwriters, (i) it is not purchasing any shares of Common Stock for the
account of anyone other than a United States or Canadian Person, (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute any Prospectus relating to the U.S. Offering to
any person outside of the United States or Canada, or to anyone other than a
United States or Canadian Person and (iii) any dealer to whom it may sell any
shares of Common Stock will represent that it is not purchasing for the account
of anyone other than a United States or Canadian Person and agree that it will
not offer or resell, directly or indirectly, any shares of Common Stock outside
of the United States or Canada, or to anyone other than a United States or
Canadian Person or to any other dealer who does not so represent and agree.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and International Underwriters. "United States or Canadian Persons" means any
person who is a national or resident of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or of any political subdivision thereof, and
any estate or trust the income of which is subject to United States or Canadian
federal income taxation, regardless of its source (other than a foreign branch
of such entity) and includes any United States or Canadian branch of a person
other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the International Underwriters and the
U.S. Underwriters of such number of shares of Common Stock as may be mutually
agreed. The price of any shares of Common Stock so sold shall be the initial
public offering price thereof set forth on the cover page of this Prospectus,
less an amount not greater than the concession to securities dealers set forth
above. To the extent that there are sales between the International Underwriters
and the U.S. Underwriters pursuant to the Agreement Between U.S. Underwriters
and International Underwriters, the number of shares of Common Stock initially
available for sale by the International Underwriters or by the U.S. Underwriters
may be more or less than the amount specified on the cover page of this
Prospectus.
Each International Underwriter has severally represented and agreed that
(i) it has not offered or sold and, prior to the expiration of six months from
the closing of the International Offering, will not offer or sell any shares of
Common Stock in the United Kingdom other than to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (whether as principal or agent) for the purposes of their businesses
or otherwise in circumstances which have not resulted in and will not result in
an offer to the public within the meaning of the Public Offers of Securities
Regulations 1995; (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the shares of Common Stock in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issue of the shares of Common Stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
89
<PAGE> 124
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
The Company and the Selling Stockholder have granted to the International
Underwriters and the U.S. Underwriters options to purchase up to an additional
and shares of Common Stock, respectively, at the
applicable price to the public less the applicable underwriting discount set
forth on the cover page of this Prospectus, solely to cover over-allotments, if
any. Such options may be exercised at any time up to 30 days after the date of
this Prospectus. To the extent such options are exercised, each of the
International Underwriters and the U.S. Underwriters will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares of Common Stock as the percentage it was obligated to
purchase pursuant to the International Underwriting Agreement or the U.S.
Underwriting Agreement, as applicable.
The Company has agreed with the Underwriters not to offer, pledge, sell,
contract to sell, or otherwise dispose of (or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise) by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company), directly or
indirectly, or announce the offering of, any other shares of Common Stock or any
securities or options convertible into, or exchangeable or exercisable for,
shares of Common Stock for a period of 180 days following the date hereof
without the prior written consent of Smith Barney Inc., subject to certain
limited exceptions. In addition, each of the Company's officers, directors and
stockholders has agreed with the Underwriters not to offer, sell, contract to
sell, pledge or otherwise dispose of, or file a registration statement with the
Securities and Exchange Commission in respect of, or establish or increase a put
equivalent position or liquidate or decrease a call equivalent position within
the meaning of Section 16 of the Exchange Act with respect to any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for shares of Common Stock, or publicly announce an intention to effect any such
transaction, for a period of 180 days after the date hereof unless with the
prior written consent of Smith Barney Inc., subject to certain limited
exceptions. Smith Barney Inc. currently does not intend to release any
securities subject to such lock-up agreements, but may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to such lock-up agreements.
The International Underwriting Agreement and the U.S. Underwriting
Agreement provide that the Company and the Selling Stockholder will indemnify
the several International Underwriters and U.S. Underwriters against certain
liabilities under the Securities Act, or contribute to payments the
International Underwriters and the U.S. Underwriters may be required to make in
respect thereof.
In connection with the Offerings, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing their market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offerings than
they are committed to purchase from the Company and the Selling Stockholder, and
in such case may purchase Common Stock following completion of the Offerings to
cover all or a portion of such short position. The Underwriters may also cover
all or a portion of such short position, up to shares of Common
Stock by exercising the Underwriters' over-allotment options referred to above.
In addition, the Representatives, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the Offerings), for
the account of the other Underwriters, the selling concession with respect to
Common Stock that is distributed in the Offerings but subsequently purchased for
the account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
The Underwriters do not intend to confirm sales in the Offerings to any
accounts over which they exercise discretionary authority.
90
<PAGE> 125
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
Prior to the Offerings, there has been no public market for the Common
Stock. Accordingly, the initial public offering price for the shares of Common
Stock was determined by negotiation among the Company, the Selling Stockholder
and the Representatives. Among the factors considered in determining the initial
public offering price were the Company's record of operations, its current
financial condition, its future prospects, the market for its services, the
experience of management, the economic conditions of the Company's industry in
general, the general condition of the equity securities market and the demand
for similar securities of companies considered comparable to the Company and
other relevant factors. There can be no assurance, however, that the prices at
which the Common Stock will sell in the public market after the Offerings will
not be lower than the price at which the shares of Common Stock are sold by the
Underwriters.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Gray Cary Ware &
Freidenrich LLP, Palo Alto, California and for the Underwriters by Cleary,
Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The consolidated balance sheets of Maxtor Corporation as of December 28,
1996 and December 27, 1997 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the nine months
ended December 28, 1996 and for the year ended December 27, 1997 included in
this Prospectus and registration statement, have been included herein in
reliance on the report, which include an emphasis of a matter related to the
Company's ultimate parent, Hyundai Electronics Industries, Co., Ltd., of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing. The consolidated statements of
operations, stockholders' equity (deficit) and cash flows of the Company for the
year ended March 30, 1996 included in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report, given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any amendments
thereto) on Form S-1 under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, and the financial statements and notes filed as a part thereof.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement, including the exhibits thereto and the
financial statements and notes filed as a part thereof, as well as such reports
and other information filed with the Commission, may be inspected without charge
at the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549 and copies of all or any part thereof may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at 7 World Trade Center,
New York, New York 10048 upon payment of certain fees prescribed by the
Commission. The Commission also maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's Web site is http://www.sec.gov.
91
<PAGE> 126
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. The reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W. Washington,
D.C. 20549, and at the Commission's Regional Offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
also can be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Reports and
other information concerning the Company can also be inspected at the offices of
the National Association of Securities Dealers, Inc., Market Listing Section,
1735 K Street, N.W. Washington, D.C. 20006.
92
<PAGE> 127
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 25
Relationship Between the Company and
Hyundai............................. 26
Use of Proceeds....................... 32
Dividend Policy....................... 32
Capitalization........................ 33
Dilution.............................. 34
Selected Consolidated Financial
Data................................ 35
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 36
Business.............................. 52
Management............................ 66
Certain Transactions.................. 75
Principal and Selling Stockholders.... 78
Description of Capital Stock.......... 79
Shares Eligible for Future Sale....... 84
Certain United States Tax Consequences
to Holders of Common Stock.......... 85
Underwriting.......................... 88
Legal Matters......................... 91
Experts............................... 91
Additional Information................ 91
Glossary.............................. 93
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------
Until , 1998 (25 days after the commencement of the offering), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
======================================================
======================================================
SHARES
MAXTOR CORPORATION
COMMON STOCK
[MAXTOR LOGO]
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
INTERNATIONAL
HAMBRECHT & QUIST
LEHMAN BROTHERS
MERRILL LYNCH INTERNATIONAL
NATIONSBANC MONTGOMERY
SECURITIES LLC
REPRESENTATIVES OF THE UNDERWRITERS
======================================================
<PAGE> 128
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than the underwriting
discounts and commissions payable by the Registrant in connection with the sale
of the Common Stock being registered. The Company is paying all of the expenses
incurred on behalf of the Selling Stockholder (other than underwriting discounts
and commissions). All amounts shown are estimates except for the registration
fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID
------------
<S> <C>
Registration fee............................................ $198,276
NASD filing fee............................................. 30,500
Nasdaq National Market application fee...................... *
Blue sky qualification fees and expenses.................... 10,000
Printing and engraving expenses............................. 102,000
Legal fees and expenses..................................... *
Accounting fees and expenses................................ 225,000
Transfer agent and registrar fees........................... 8,000
Miscellaneous expenses...................................... *
--------
Total....................................................... $ *
========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Amended and Restated
Certificate of Incorporation and Bylaws provide that the Registrant shall
indemnify its directors, officers, employees and agents to the full extent
permitted by Delaware General Corporation Law, including in circumstances in
which indemnification is otherwise discretionary under Delaware law. In
addition, the Registrant intends to enter into separate indemnification
agreements with its directors, officers and certain employees which would
require the Registrant, among other things, to indemnify them against certain
liabilities which may arise by reason of their status or service (other than
liabilities arising from willful misconduct of a culpable nature). The
Registrant also intends to maintain director and officer liability insurance, if
available on reasonable terms.
These indemnification provisions and the indemnification agreement to be
entered into between the Registrant and its officers and directors may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.
The Underwriting Agreements filed as Exhibit 1.1 to this Registration
Statement provide for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1994, the Company has sold and issued the following
unregistered securities:
(a) In February 1994, the Company sold an aggregate of 19,480,000
shares of the Company's Series A Common Stock to four Hyundai affiliated
entities. The purchase price in this transaction was $7.70 per share of
Series A Common Stock, resulting in aggregate proceeds of approximately
$150 million.
II-1
<PAGE> 129
(b) [In January 1996, upon the merger of HEA with Maxtor, following
assignment by Purchaser to HEA all pre-merger issued and outstanding shares
of Maxtor were canceled and the Company issued 300 shares of Common Stock
to HEI.]
(c) In June 1996, the Company entered into an exchange agreement with
HEA whereby HEA exchanged 300 shares of Common Stock for 58,208,955 shares
of Series A Preferred Stock, $.001 par value.
(d) In December 1997, the Company and HEA entered into a Debt Payment
and Stock Purchase Agreement pursuant to which the Company issued
29,850,746 shares of the Company's Series A Preferred Stock to HEA as
payment for the cancellation of $200 million owed to HEA by the Company.
The price in this transaction was $6.70 per share of Series A Preferred
Stock.
(e) From December 1997 through March 1998, pursuant to the Plan, the
Company issued an aggregate of 7,563 shares of the Common Stock to four
stockholders for an aggregate of $45,375 and issued options to purchase an
aggregate of shares of Common Stock with an exercise price
equal to the fair market value on the date of grant as determined by the
Board to optionholders.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Transactions" in the form of Prospectus included herein.
The issuances described in Items 15(a) through 15(d) were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act as transactions by an issuer not involving a public offering.
Certain issuances described in Item 15(e) were deemed exempt from registration
under the Securities Act in reliance on Section 4(2) or Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other instruments
issued in such transactions. All recipients either received adequate information
about the Company or had access, through employment or other relationships, to
such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of U.S. Underwriting Agreement.++
1.2 Form of International Underwriting Agreement.++
3.1 Amended and Restated Certificate of Incorporation of
Registrant dated June 6, 1996.
3.2 Amended and Restated Certificate of Incorporation of
Registrant dated , 1998.++
3.3 Amended and Restated Bylaws of Registrant dated June 6,
1996.
3.4 Amended and Restated bylaws of Registrant dated ,
1998.++
4.1 Specimen certificate representing the Common Stock.++
4.2 Stockholder Agreement.++
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.++
10.1 Form of Indemnification Agreement between Registrant and
Registrant's directors and officers.
10.2 Indenture dated as of March 1, 1987 between Registrant and
Security Pacific National Bank, as Trustee.
</TABLE>
II-2
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.3 (1) Grant Agreement dated 25 October 1990 between the Industrial
Development Authority, Maxtor Ireland Limited and
Registrant.
10.4 (3) Security Agreement between Registrant and the CIT
Group/Equipment Financing, Inc., dated September 18, 1992.
10.5 (3) Deed of Priorities among Maxtor (Hong Kong) Limited,
Registrant and General Electric Capital Corporation, dated
September 25, 1992.
10.6 (3) Lease among Dares Developments (Woking) Limited, Maxtor
Europe Limited and Registrant, dated October 1992.
10.7 (2) 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.
10.10 (5) Lease Agreement for Premises Located at 1821 Lefthand
Circle, Suite D, between Registrant and Pratt Land Limited
Liability Company, dated October 19, 1994.
10.11 (5) Lease Agreement for Premises Located at 1841 Lefthand Circle
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.12 (5) Lease Agreement for Premises Located at 1851 Lefthand Circle
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.13 (5) Lease Agreement for Premises Located at 2121 Miller Drive
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.14 (5) Lease Agreement for Premises Located at 2190 Miller Drive
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.15 (6) Lease Agreement by and between 345 Partnership and
Registrant, dated February 24, 1995.
10.16 (6) 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.
10.17 (6) 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.
10.18 (6) Manufacturing and Purchase Agreement by and Between
Registrant and Hyundai Electronics Industries Co., Ltd.,
dated April 27, 1995.
10.19 (6) 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.
10.20 (7) Memorandum of Understanding concerning Guarantee by Hyundai
Electronics Co., Ltd. of Credit Facility for Registrant,
dated July 17, 1995.
10.21 (7) Waiver to Financing Agreement among Registrant and The CIT
Group/Business Credit, Inc., dated August 2, 1995.
10.22 (9) Credit Agreement among Registrant and The Initial Lenders
and the Issuing Bank and Citibank, N.A., dated August 31,
1995.
10.23 (9) The Guaranty and Recourse Agreement among Registrant and
Hyundai Electronics Industries Co., Ltd., dated August 31,
1995.
10.24 (9) 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.
10.25 (9) Amendment to the Financing Agreement among Registrant and
the CIT Group/ Business Credit, Inc., dated October 17,
1995.
10.26 (10) First Supplemental Indenture, dated as of January 11, 1996,
between Registrant and State Street Bank and Trust Company.
</TABLE>
II-3
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.27 (10) Credit Agreement, dated as of December 29, 1995 between
Registrant and Hyundai Electronics America.
10.28 (12) Maxtor Corporation 1996 Stock Option Plan.**
10.29 (12) Intercompany Loan Agreement, dated as of April 10, 1996,
between Registrant and Hyundai Electronics America.
10.30 (12) Receivables Purchase and Sale Agreement, dated as of March
30, 1996, among Registrant and Corporate Receivables
Corporation and Citicorp North America, Incorporated.
10.31 (11) Recapitalization Agreement among the Registrant,
International Manufacturing Services, Incorporated and
certain investors, dated as of May 21, 1996.
10.32 (11) Redemption Agreement between Registrant and International
Manufacturing Services, Incorporated, dated as of May 21,
1996.
10.33 (11) Manufacturing Services Agreement between Registrant and
International Manufacturing Services, Incorporated, dated
June 13, 1996.*
10.34 (12) Credit Facility, dated as of July 31, 1996, between
Registrant and Hyundai Electronics America.
10.35 (13) Exchange Agreement effective June 18, 1996, between Maxtor
Corporation and Hyundai Electronics America.
10.36 (14) 364-Day Credit Agreement, dated August 29, 1996, among
Registrant, Citibank, N.A., and Syndicate Banks.
10.37 (14) Credit Agreement, dated August 29, 1996, among Registrant,
Citibank, N.A., and Syndicate Banks.
10.38 (15) Employment Agreement between Michael R. Cannon and
Registrant, dated June 17, 1996.**
10.39 (15) Employment Agreement between Paul J. Tufano and Registrant,
dated July 12, 1996.**
10.40 (15) Employment Agreement between William Roach and Registrant,
dated December 13, 1996.**
10.41 (16) Intercompany Loan Agreement, dated as of April 10, 1997,
between Registrant and Hyundai Electronics America.
10.42 (17) Debt Payment and Stock Purchase Agreement, dated as of
December 12, 1997, between Registrant and Hyundai
Electronics America.
10.43 (17) Amendment to August 29, 1996 364-Day Credit Agreement, dated
August 27, 1997, among Registrant, Citibank, N.A. and
Syndicate Banks.
10.44 Employment Agreement between Philip Duncan and Registrant
dated July 15, 1996.**
10.45 Receivables Purchase and Sale Agreement dated as of April 8,
1998, among Maxtor Receivables Corporation, Registrant,
Corporate Receivables Corporation, Citicorp North America
and Bankers Trust Company.
10.46 Intercompany Loan Agreement dated as of April 10, 1998,
between Hyundai Electronics America and Registrant.
10.47 Credit Agreement between Bank of America and Registrant
dated December 26, 1996.
10.48 Employment Agreement between K.H. Teh and Registrant, dated
March 23, 1997.**
10.49 Lease Agreement between Milpitas Oak Creek Delaware, Inc.
and Registrant dated as of February 23, 1998.
10.50 Sublease Agreement, dated as of April 1, 1998, between
Registrant and Sony Electronics, Inc.++
10.51 Business Agreement dated as of April 30, 1998, between
Registrant and Texas Instruments Incorporated.++
</TABLE>
II-4
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.52 Volume Purchase Agreement dated as of January 1, 1998,
between Registrant and Lucent Technologies, Inc.++
10.53 Land Lease between Housing Development Board and Maxtor
Singapore Limited dated as of March 28, 1991.
10.54 R/3 Software End-User Value License Agreement between SAP
Korea Ltd. and Hyundai Information Technology Co. Ltd. dated
as of June 30, 1996.
10.55 Sublicense Agreement between Hyundai Electronics Industries
Co., Ltd., and Maxtor Corporation dated as of January 1,
1996.
10.56 Tax Allocation Agreement dated as of July 21, 1995 among
Hyundai Electronics America, registrant and certain other
subsidiaries.
10.57 (8) Agreement and Plan of Merger dated November 2, 1995 between
Registrant, Hyundai Electronics America and Hyundai
Acquisition, Inc.
10.58 Tax Indemnification Agreement and Amendment to Tax
Allocation Agreement dated , 1998.++
10.59 Indemnity Agreement between HEI and Registrant dated
, 1998.++
10.60 License Agreement between Registrant and HEI dated
, 1998.++
10.61 (3) 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.
10.62 Purchase Agreement between Registrant and MMC.++
10.63 1998 Restricted 1998 Stock Plan.++**
10.64 Form of Change of Control Agreement.++**
10.65 Amended and Restated 1996 Stock Option Plan.++**
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Gray Cary Ware & Freidenrich, LLP.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule (EDGAR filed version only).
</TABLE>
- ---------------
* Confidential treatment has been requested for portions of this document
** Management contract, or compensatory plan or arrangement
+ Previously filed.
++ To be filed by amendment.
(1) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective June 25, 1992.
(2) Incorporated by reference to exhibits of Form 8-K filed January 8, 1993
(3) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective May 27, 1993
(4) [Incorporated by reference to exhibits of Form 10-Q filed February 7, 1994]
(5) Incorporated by reference to exhibits of Form 10-Q filed February 7, 1995
(6) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective June 23, 1995
(7) Incorporated by reference to exhibits of Form 10-Q filed August 14, 1995
(8) Incorporated by reference to exhibit III of Schedule 14D-9 filed November
9, 1995
(9) Incorporated by reference to exhibits of Form 10-Q filed November 14, 1996
(10) Incorporated by reference to exhibits of Form 10-Q filed February 14, 1996
(11) Incorporated by reference to exhibits of Form 8-K filed June 28, 1996
II-5
<PAGE> 133
(12) Incorporated by reference to exhibits of Form 10-K filed July 1, 1996
(13) Incorporated by reference to exhibits of Form 10-Q filed August 13, 1996
(14) Incorporated by reference to exhibits of Form 8-K filed September 13, 1996
(15) Incorporated by reference to exhibits of Form 10-K filed March 26, 1997
(16) Incorporated by reference to exhibits of Form 10-Q filed May 12, 1997
(17) Incorporated by reference to exhibits of Form 10-K filed April 10, 1998
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the Offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Milpitas, County of Santa
Clara, State of California, on the 5th day of June 1998.
MAXTOR CORPORATION
By: /s/ MICHAEL R. CANNON
------------------------------------
Michael R. Cannon
President and Chief Executive
Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Dr. Chong Sup Park and Michael R.
Cannon, and each of them acting individually, as his true and lawful
attorneys-in-fact and agents, each with full power of substitution, for him in
any and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments or any abbreviated registration
statement and any amendments thereto filed pursuant to Rule 462(b) increasing
the number of securities for which registration is sought), and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DR. CHONG SUP PARK Chairman of the Board June 5, 1998
- -----------------------------------------------------
Dr. Chong Sup Park
/s/ MICHAEL R. CANNON President, Chief Executive June 5, 1998
- ----------------------------------------------------- Officer and Director
Michael R. Cannon
/s/ PAUL J. TUFANO Vice President, Finance, Chief June 5, 1998
- ----------------------------------------------------- Financial Officer and Principal
Paul J. Tufano Accounting Officer
/s/ CHANG SEE CHUNG Director June 5, 1998
- -----------------------------------------------------
Chang See Chung
/s/ CHARLES HILL Director June 5, 1998
- -----------------------------------------------------
Charles Hill
/s/ CHARLES F. CHRIST Director June 5, 1998
- -----------------------------------------------------
Charles F. Christ
</TABLE>
II-7
<PAGE> 135
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Y.H. KIM Director June 5, 1998
- -----------------------------------------------------
Y.H. Kim
/s/ PHILIP S. PAUL Director June 5, 1998
- -----------------------------------------------------
Philip S. Paul
</TABLE>
II-8
<PAGE> 136
MAXTOR CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS CHARGED
BALANCE AT TO COST DEDUCTIONS/ BALANCE AT
PERIOD ENDED BEGINNING OF PERIOD AND EXPENSES (RECOVERIES(1)) END OF PERIOD
------------ ------------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
March 30, 1996....................... $3,850 $1,232 $ (114) $5,196
December 28, 1996.................... $5,196 $1,355 $1,296 $5,255
December 27, 1997.................... $5,255 $1,000 $2,682 $3,573
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE> 137
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of U.S. Underwriting Agreement.++
1.2 Form of International Underwriting Agreement.++
3.1 Amended and Restated Certificate of Incorporation of
Registrant dated June 6, 1996.
3.2 Amended and Restated Certificate of Incorporation of
Registrant dated , 1998.++
3.3 Amended and Restated Bylaws of Registrant dated June 6,
1996.
3.4 Amended and Restated bylaws of Registrant dated ,
1998.++
4.1 Specimen certificate representing the Common Stock.++
4.2 Stockholder Agreement.++
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.++
10.1 Form of Indemnification Agreement between Registrant and
Registrant's directors and officers.
10.2 Indenture dated as of March 1, 1987 between Registrant and
Security Pacific National Bank, as Trustee.
10.3 (1) Grant Agreement dated 25 October 1990 between the Industrial
Development Authority, Maxtor Ireland Limited and
Registrant.
10.4 (3) Security Agreement between Registrant and the CIT
Group/Equipment Financing, Inc., dated September 18, 1992.
10.5 (3) Deed of Priorities among Maxtor (Hong Kong) Limited,
Registrant and General Electric Capital Corporation, dated
September 25, 1992.
10.6 (3) Lease among Dares Developments (Woking) Limited, Maxtor
Europe Limited and Registrant, dated October 1992.
10.7 (2) 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.
10.10 (5) Lease Agreement for Premises Located at 1821 Lefthand
Circle, Suite D, between Registrant and Pratt Land Limited
Liability Company, dated October 19, 1994.
10.11 (5) Lease Agreement for Premises Located at 1841 Lefthand Circle
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.12 (5) Lease Agreement for Premises Located at 1851 Lefthand Circle
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.13 (5) Lease Agreement for Premises Located at 2121 Miller Drive
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.14 (5) Lease Agreement for Premises Located at 2190 Miller Drive
between Registrant and Pratt Land Limited Liability Company,
dated October 19, 1994.
10.15 (6) Lease Agreement by and between 345 Partnership and
Registrant, dated February 24, 1995.
10.16 (6) 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.
10.17 (6) 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.
</TABLE>
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<TABLE>
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NUMBER DESCRIPTION OF DOCUMENT
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10.18 (6) Manufacturing and Purchase Agreement by and Between
Registrant and Hyundai Electronics Industries Co., Ltd.,
dated April 27, 1995.
10.19 (6) 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.
10.20 (7) Memorandum of Understanding concerning Guarantee by Hyundai
Electronics Co., Ltd. of Credit Facility for Registrant,
dated July 17, 1995.
10.21 (7) Waiver to Financing Agreement among Registrant and The CIT
Group/Business Credit, Inc., dated August 2, 1995.
10.22 (9) Credit Agreement among Registrant and The Initial Lenders
and the Issuing Bank and Citibank, N.A., dated August 31,
1995.
10.23 (9) The Guaranty and Recourse Agreement among Registrant and
Hyundai Electronics Industries Co., Ltd., dated August 31,
1995.
10.24 (9) 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.
10.25 (9) Amendment to the Financing Agreement among Registrant and
the CIT Group/ Business Credit, Inc., dated October 17,
1995.
10.26 (10) First Supplemental Indenture, dated as of January 11, 1996,
between Registrant and State Street Bank and Trust Company.
10.27 (10) Credit Agreement, dated as of December 29, 1995 between
Registrant and Hyundai Electronics America.
10.28 (12) Maxtor Corporation 1996 Stock Option Plan.**
10.29 (12) Intercompany Loan Agreement, dated as of April 10, 1996,
between Registrant and Hyundai Electronics America.
10.30 (12) Receivables Purchase and Sale Agreement, dated as of March
30, 1996, among Registrant and Corporate Receivables
Corporation and Citicorp North America, Incorporated.
10.31 (11) Recapitalization Agreement among the Registrant,
International Manufacturing Services, Incorporated and
certain investors, dated as of May 21, 1996.
10.32 (11) Redemption Agreement between Registrant and International
Manufacturing Services, Incorporated, dated as of May 21,
1996.
10.33 (11) Manufacturing Services Agreement between Registrant and
International Manufacturing Services, Incorporated, dated
June 13, 1996.
10.34 (12) Credit Facility, dated as of July 31, 1996, between
Registrant and Hyundai Electronics America.
10.35 (13) Exchange Agreement effective June 18, 1996, between Maxtor
Corporation and Hyundai Electronics America.
10.36 (14) 364-Day Credit Agreement, dated August 29, 1996, among
Registrant, Citibank, N.A., and Syndicate Banks.
10.37 (14) Credit Agreement, dated August 29, 1996, among Registrant,
Citibank, N.A., and Syndicate Banks.
10.38 (15) Employment Agreement between Michael R. Cannon and
Registrant, dated June 17, 1996.**
10.39 (15) Employment Agreement between Paul J. Tufano and Registrant,
dated July 12, 1996.**
10.40 (15) Employment Agreement between William Roach and Registrant,
dated December 13, 1996.**
</TABLE>
<PAGE> 139
<TABLE>
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NUMBER DESCRIPTION OF DOCUMENT
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10.41 (16) Intercompany Loan Agreement, dated as of April 10, 1997,
between Registrant and Hyundai Electronics America.
10.42 (17) Debt Payment and Stock Purchase Agreement, dated as of
December 12, 1997, between Registrant and Hyundai
Electronics America.
10.43 (17) Amendment to August 29, 1996 364-Day Credit Agreement, dated
August 27, 1997, among Registrant, Citibank, N.A. and
Syndicate Banks.
10.44 Employment Agreement between Philip Duncan and Registrant
dated July 15, 1996.**
10.45 Receivables Purchase and Sale Agreement dated as of April 8,
1998, among Maxtor Receivables Corporation, Registrant,
Corporate Receivables Corporation, Citicorp North America
and Bankers Trust Company.
10.46 Intercompany Loan Agreement dated as of April 10, 1998,
between Hyundai Electronics America and Registrant.
10.47 Credit Agreement between Bank of America and Registrant
dated December 26, 1996.
10.48 Employment Agreement between K.H. Teh and Registrant, dated
March 23, 1997.**
10.49 Lease Agreement between Milpitas Oak Creek Delaware, Inc.
and Registrant dated as of February 23, 1998.
10.50 Sublease Agreement, dated as of April 1, 1998, between
Registrant and Sony Electronics, Inc.++
10.51 Business Agreement dated as of April 30, 1998, between
Registrant and Texas Instruments Incorporated.++
10.52 Volume Purchase Agreement dated as of January 1, 1998,
between Registrant and Lucent Technologies, Inc.++
10.53 Land Lease between Housing Development Board and Maxtor
Singapore Limited dated as of March 28, 1991.
10.54 R/3 Software End-User Value License Agreement between SAP
Korea Ltd. and Hyundai Information Technology Co. Ltd. dated
as of June 30, 1996.
10.55 Sublicense Agreement between Hyundai Electronics Industries
Co., Ltd., and Maxtor Corporation dated as of January 1,
1996.
10.56 Tax Allocation Agreement dated as of July 21, 1995 among
Hyundai Electronics America, registrant and certain other
subsidiaries.
10.57 (8) Agreement and Plan of Merger dated November 2, 1995 between
Registrant, Hyundai Electronics America and Hyundai
Acquisition, Inc.
10.58 Tax Indemnification Agreement and Amendment to Tax
Allocation Agreement dated , 1998.++
10.59 Indemnity Agreement between HEI and Registrant dated
, 1998.++
10.60 License Agreement between Registrant and HEI dated
, 1998.++
10.61 (3) 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.
10.62 Purchase Agreement between Registrant and MMC.++
10.63 1998 Restricted 1998 Stock Plan.++**
10.64 Form of Change of Control Agreement.++**
10.65 Amended and Restated 1996 Stock Option Plan.++**
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Gray Cary Ware & Freidenrich, LLP.
</TABLE>
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<TABLE>
<CAPTION>
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24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule (EDGAR filed version only).
</TABLE>
- ---------------
* Confidential treatment has been requested for portions of this document
** Management contract, or compensatory plan or arrangement
+ Previously filed.
++ To be filed by amendment.
(1) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective June 25, 1992.
(2) Incorporated by reference to exhibits of Form 8-K filed January 8, 1993
(3) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective May 27, 1993
(4) [Incorporated by reference to exhibits of Form 10-Q filed February 7, 1994]
(5) Incorporated by reference to exhibits of Form 10-Q filed February 7, 1995
(6) Incorporated by reference to exhibits to Annual Report on Form 10-K
effective June 23, 1995
(7) Incorporated by reference to exhibits of Form 10-Q filed August 14, 1995
(8) Incorporated by reference to exhibit III of Schedule 14D-9 filed November
9, 1995
(9) Incorporated by reference to exhibits of Form 10-Q filed November 14, 1996
(10) Incorporated by reference to exhibits of Form 10-Q filed February 14, 1996
(11) Incorporated by reference to exhibits of Form 8-K filed June 28, 1996
(12) Incorporated by reference to exhibits of Form 10-K filed July 1, 1996
(13) Incorporated by reference to exhibits of Form 10-Q filed August 13, 1996
(14) Incorporated by reference to exhibits of Form 8-K filed September 13, 1996
(15) Incorporated by reference to exhibits of Form 10-K filed March 26, 1997
(16) Incorporated by reference to exhibits of Form 10-Q filed May 12, 1997
(17) Incorporated by reference to exhibits of Form 10-K filed April 10, 1998
<PAGE> 1
Exhibit 3.1
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
1
<PAGE> 2
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
2
<PAGE> 3
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
3
<PAGE> 4
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
4
<PAGE> 5
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.
5
<PAGE> 6
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 30th day of May, 1996.
/s/ C.S. Park
---------------------------------------
C.S. Park
President and Chief Executive Officer
Attest:
/s/ G.H. Stevens
- ---------------------------
Glenn H. Stevens, Secretary
6
<PAGE> 1
Exhibit 3.3
MAXTOR CORPORATION,
a Delaware Corporation
AMENDED AND RESTATED BY-LAWS
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. 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).
Section 3. 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 it 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.
1
<PAGE> 2
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.
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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
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(8) To adopt from time to time regulations, not inconsistent with
these By-laws, 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 limitations,
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
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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 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.
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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 with 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 bond 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.
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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.
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\ 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
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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
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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.
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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.
Glenn H. Stevens, Secretary
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EXHIBIT 10.1
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of __________, 199 , is made by
and between MAXTOR CORPORATION, a Delaware corporation (the "Company"), and
__________, [an Officer] [a Director] of the Company (the "Indemnitee").
RECITALS
A. The Company seeks to attract and retain competent and experienced
persons to serve as directors and officers and wishes to protect such
individuals by providing comprehensive liability insurance and indemnification,
due to exposure to litigation costs and risks resulting from their service the
Company;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. Plaintiffs may seek damages in amounts which, coupled with the
costs of litigation (whether or not the case is meritorious), cause the defense
and/or settlement of such litigation to exceed the personal resources of
officers and directors;
D. The Company believes that it is unfair for its directors and
officers and the directors and officers of its subsidiaries to assume the risk
of huge judgments and other expenses which may occur in cases in which the
director or officer received no personal profit and in cases where the director
or official was not culpable;
E. The Company recognizes that the issues in controversy in litigation
against a director or officer of a corporation such as the Company or a
subsidiary of the Company are often related to the knowledge, motives and intent
of such director or officer, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the normal time that the
director or officer can reasonably recall such matters; and may extend beyond
the normal time for retirement for such director or officer with the result that
he, after retirement or in the event of his death, his spouse, heirs, executors
or administrators, may be faced with limited ability and undue hardship in
maintaining an adequate defense, which may discourage such a director or officer
from serving in that position;
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as officers and directors of the
Company and its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Company and its subsidiaries, it
is necessary for the Company to contractually indemnify its officers and
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directors and the officers and directors of its subsidiaries, and to assume for
itself maximum liability for expenses and damages in connection with claims
against such officers and directors in connection with their service to the
Company and its subsidiaries, and has further concluded that the failure to
provide such contractual indemnification could result in great harm to the
Company and its subsidiaries and the Company's stockholders;
G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
officers, directors, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive;
H. The Company, after reasonable investigation prior to the date
hereof, has determined that the liability insurance coverage available to the
Company and its subsidiaries as of the date hereof may be inadequate and/or
unreasonably expensive. The Company believes, therefore, that the interests of
the Company's stockholders would best be served by a combination of such
insurance as the Company may obtain, or request a subsidiary to obtain, pursuant
to the Company's obligations hereunder and the indemnification by the Company of
the directors and officers of the Company and its subsidiaries;
I. The Company desires and has requested the Indemnitee to serve or
continue to serve is a director or officer of the Company and/or one or more
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company; and
J. The Indemnitee is willing to serve, or to continue to serve, the
Company and/or one or more subsidiaries of the Company, provided that he is
furnished the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions.
(a) Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the
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Company, or was a director, officer, employee or agent of another enterprise at
the request of, for the convenience of, or to represent the interests of such
predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses" includes
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements, other
out-of-pocket costs and reasonable compensation for time spent by the Indemnitee
for which he is not otherwise compensated by the Company or any third party)
actually and reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement, Section 145 or otherwise;
provided, however, that expenses shall not include any judgments, fines, ERISA
excise taxes or penalties or amounts paid in settlement of a proceeding.
(c) Proceeding. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
(d) Subsidiary. For purposes of this Agreement, "subsidiary" means
any corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more
other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue
to serve as an agent of the Company, at its will (or under separate agreement,
if such agreement exists), in the capacity Indemnitee currently serves as an
agent of the Company, so long as he is duly appointed or elected and qualified
in accordance with the applicable provisions of the by-laws of the Company or
any subsidiary of the Company or until such time as he tenders his resignation
in writing, provided, however, that nothing contained in this Agreement is
intended to create any right to continued employment by Indemnitee.
3. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, so long as the
Indemnitee shall continue to serve as an agent of the Company and thereafter for
the period of five years following the termination of service as an officer or
director of the Company, to the extent the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in the amount of $10 million in the aggregate for each policy
year from established and reputable insurers.
(b) In all policies of D&O Insurance, the Indemnitee shall be named
as an insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors, if the Indemnitee is a director; or of the Company's officers, if the
Indemnitee is not a director of the Company but is
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an officer; or of the Company's key employees, if the Indemnitee is not an
officer or director but is a key employee.
(c) Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in good
faith that such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.
4. Mandatory Indemnification. The Company shall indemnify the
Indemnitee:
(a) Third Party Actions. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties, and amounts paid in settlement) actually and reasonably incurred
by him in connection with the investigation, defense, settlement or appeal of
such proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
(b) Derivative Actions. If the Indemnitee is a person who was or is
a party or is threatened to be made a party to any proceeding by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, against any amounts paid in settlement of any such
proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement, or appeal of such
proceeding if he acted in good faith in a manner he reasonably believed to be in
or not opposed to the best interests of the Company; except that no
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly arid reasonably entitled to indemnity for such amounts which
the Court of Chancery or such other court shall deem proper; and
(c) Actions Where Indemnitee is Deceased. If the Indemnitee is a
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, against any
and all expenses and liabilities of any type whatsoever (including, but not
limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid
in settlement) actually and reasonably incurred by or for him in connection with
the investigation,
4
<PAGE> 5
defense, settlement or appeal of such proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company, and, prior to, during the pendency or after completion of such
proceeding Indemnitee is deceased, except that in a proceeding by or in the
right of the Company no indemnification shall be due under the provisions of
this subsection in respect of any claim, issue or matter as to which such person
shall have been finally adjudged to be liable to the Company, by a court of
competent jurisdiction, due to willful misconduct of a culpable nature in the
performance of his duty to the Company, unless and only to the extent that the
Court of Chancery or the court in which such proceeding was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such amounts which the Court of Chancery or such other
court shall deem proper; and
(d) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties, and amounts paid in settlement) which have been paid directly to
Indemnitee by D&O Insurance.
5. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but not entitled, however, to indemnification for all of
the total amount thereof, the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 11(a) below,
the Company shall advance all expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined pursuant to Section 8 hereof that the Indemnitee
is not entitled to be indemnified by the Company as authorized hereby. The
advances to be made hereunder shall be paid by the Company to the Indemnitee
within twenty (20) days following delivery of a written request therefor by the
Indemnitee to the Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceedings, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
5
<PAGE> 6
(b) If, at the time of the receipt of a notice of the commencement
of a proceeding pursuant to Section 7(a) hereof, the Company has D&O Insurance
in effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.
(c) In the event the Company shall be obligated to pay the expenses
of any proceedings against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceedings, with counsel approved by the
Indemnitee, upon the delivery to the Indemnitee of written notice of the
election so to do. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, the fees and expenses of Indemnitee's
counsel shall be at the expense of the Company.
8. Determination of Right to Indemnification.
(a) To the extent the Indemnitee has been successful on the merits
or otherwise in defense of any proceeding referred to in subsections 4(a), 4(b)
or 4(c) of this Agreement or in the defense of any claim, issue or matter
described therein, the Company shall indemnify the Indemnitee against expenses
actually and reasonably incurred by him in connection with the investigation,
defense, or appeal of such proceeding.
(b) In the event that Section 8(a) is inapplicable, the Company
shall also indemnify the Indemnitee unless, and only to the extent that, the
Company shall prove by clear and convincing evidence to a forum listed in
Subsection 8(c) below that the Indemnitee has not met the applicable standard of
conduct required to entitle the Indemnitee to such indemnification.
(c) The Indemnitee shall be entitled to select the forum in which
the validity of the Company's claim under Section 8(b) hereof that the
Indemnitee is not entitled to indemnification will be heard from among the
following:
(1) A quorum of the Board consisting of directors who are not
parties to the proceeding for which indemnification is being sought;
(2) The stockholders of the Company;
(3) Legal counsel selected by the Indemnitee, and reasonably
approved by the Board, which counsel shall make such determination in a written
opinion; or
6
<PAGE> 7
(4) A panel of three arbitrators, one of whom is selected by
the Company, another of whom is selected by the Indemnitee and the last of whom
is selected by the first two arbitrators so selected.
(d) As soon as practicable, and in no event later than 30 days
after written notice of the Indemnitor's choice of forum pursuant to Section
8(c) above, the Company shall, at its own expense, submit to the selected forum
in such manner as the Indemnitee or the Indemnitee's counsel may reasonably
request, its claim that the Indemnitee is not entitled to indemnification; and
the Company shall act in the utmost good faith to assure the Indemnitee a
complete opportunity to defend against such claim.
(e) Notwithstanding a determination by and forum listed in Section
8(c) hereof that Indemnitee is not entitled to indemnification with respect to a
specific proceeding, the Indemnitee shall have the right to apply to the Court
of Chancery of Delaware, the court in which that proceeding is or was pending or
any other court of competent jurisdiction, for the purpose of enforcing the
Indemnitee's right to indemnification pursuant to this Agreement.
(f) Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement unless a court of competent jurisdiction finds
that each of the claims and/or defenses of the Indemnitee in any such proceeding
was frivolous or made in bad faith.
9. Limitation of Actions and Release of Claims. No proceeding shall be
brought and no cause of action shall be asserted by or on behalf of the Company
or any subsidiary against the Indemnitee, his spouse, heirs, estate, executors
or administrators after the expiration of one year from the act or omission of
the Indemnitee upon which such proceeding is based; however, in a case where the
Indemnitee fraudulently conceals the facts underlying such cause of action, no
proceeding shall be brought and no cause action shall be asserted after the
expiration of one year from the earlier of (i) the date the Company or any
subsidiary of the Company discovers such facts, or (ii) the date the Company or
any subsidiary of the Company could have discovered such facts by the exercise
of reasonable diligence. Any claim or cause of action of the Company or any
subsidiary of the Company, including claims predicated upon the negligent act or
omission of the Indemnitee, shall be extinguished and deemed released unless
asserted by filing of a legal action within such period. This Section 9 shall
not apply to any cause of action which has accrued on the date hereof and of
which the Indemnitee is aware on the date hereof, but as to which the Company
has no actual knowledge apart from the Indemnitee's knowledge.
7
<PAGE> 8
10. Stockholder Ratification. Unless the form of this Agreement has
been approved by the stockholders of the Company, this Agreement shall be
expressly subject to ratification by such stockholders. If the form of this
Agreement is not so ratified and/or approved by such stockholders before the
effective date of this Agreement, or within one year after the effective date
hereof, this Agreement shall be void.
11. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as
required under Section 145, but such indemnification or advancement of expenses
may be provided by the Company in specific cases if the Board of Directors finds
it to be appropriate; or
(b) Lack of Good Faith. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee under
this Agreement for any amounts paid in settlement of a proceeding effected
within seven (7) calendar days after delivery by the Indemnitee to the Company
of the notice provided for in Section 7(a) hereof unless the Company consents to
such settlement.
12. Non-exclusivity. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or Bylaws, the vote of the
Company's stockholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
13. Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or inspired thereby, and (ii) to the fullest extent
possible, the provisions of this
8
<PAGE> 9
Agreement (including, without limitation, all portions of any paragraph of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
be construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable and to give effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of Agreement shall be deemed
or shall constitute a waiver of any other provision hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
16. Successors and Assigns. The terms of this Agreement shall bind,
and shall inure to the benefit of, the successors and assigns of the parties
hereto.
17. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date, Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.
18. Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
19. Consent to Jurisdiction. The Company and the Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with action or proceeding which arises
out of or relates to this Agreement and agree that any action instituted under
this Agreement shall be brought only in the state courts of the State of
Delaware.
9
<PAGE> 10
The parties hereto have entered into this Indemnity Agreement
effective as of the date first above written.
MAXTOR CORPORATION
By_____________________________
Its
Address:
INDEMNITEE:
_______________________________
Address:
10
<PAGE> 1
EXHIBIT 10.2
================================================================================
MAXTOR CORPORATION
(A DELAWARE CORPORATION)
AND
MAXTOR CORPORATION
(A CALIFORNIA CORPORATION)
GUARANTOR
TO
SECURITY PACIFIC NATIONAL BANK
TRUSTEE
______________
INDENTURE
DATED AS OF MARCH 1, 1987
______________
$100,000,000
5 3/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE MARCH 1, 2012
================================================================================
<PAGE> 2
MAXTOR CORPORATION
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939 AND
INDENTURE, DATED AS OF MARCH 1, 1987
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
- ----------------- -----------------
<S> <C>
Section 310(a)(1) ..................................... 609
(a)(2) ..................................... 609
(a)(3) ..................................... Not Applicable
(a)(4) ..................................... Not Applicable
(b) ..................................... 608
610
Section 311(a) ..................................... 613(a)
(b) ..................................... 613(b)
(b)(2) ..................................... 613(b)
703(b)
Section 312(a) ..................................... 701
702(a)
(b) ..................................... 702(b)
(c) ..................................... 702(c)
Section 313(a) ..................................... 703(a)
(b) ..................................... 703(b)
(c) ..................................... 703(a), 703(b)
(d) ..................................... 703(c)
Section 314(a) ..................................... 704
(b) ..................................... Not Applicable
(c)(1) ..................................... 102
(c)(2) ..................................... 102
(c)(3) ..................................... Not Applicable
(d) ..................................... Not Applicable
(e) ..................................... 102
Section 315(a) ..................................... 601(a)
(b) ..................................... 602
703(a)(6)
(c) ..................................... 601(b)
(d) ..................................... 601(c)
(d)(1) ..................................... 601(a), 601(c)
(d)(2) ..................................... 601(c)(2)
(d)(3) ..................................... 601(c)(3)
(e) ..................................... 514
Section 316(a) ..................................... 101
(a)(1)(A) ..................................... 502
..................................... 512
(a)(1)(B) ..................................... 513
(a)(2) ..................................... Not Applicable
(b) ..................................... 508
Section 317(a)(1) ..................................... 503
(a)(2) ..................................... 504
(b) ..................................... 1003
Section 318(a) ..................................... 107
</TABLE>
- --------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Parties ...................................................... 1
Recitals of the Company ...................................... 1
Recitals of the Guarantor .................................... 1
</TABLE>
ARTICLE ONE
Definitions and Other Provisions of General Application
<TABLE>
<CAPTION>
<S> <C>
Section 101. Definitions
Act .......................................... 2
Affiliate; control ........................... 2
Authenticating Agent ......................... 2
Board of Directors ........................... 3
Board Resolution ............................. 3
Business Day ................................. 3
Closing Price ................................ 3
Commission ................................... 3
Common Stock ................................. 3
Company ...................................... 4
Company Request; Company Order ............... 4
Conversion price ............................. 4
Corporate Trust Office ....................... 4
Corporation .................................. 4
Debenture Register; Debenture Registrar ...... 4
Defaulted Interest ........................... 4
Event of Default ............................. 4
Guarantee .................................... 4
Guarantor .................................... 4
Holder ....................................... 5
Indenture .................................... 5
Interest Payment Date ........................ 5
Maturity ..................................... 5
Officers' Certificate ........................ 5
Opinion of Counsel ........................... 5
Outstanding .................................. 5
Paying Agent ................................. 6
Person ....................................... 6
Predecessor Debenture ........................ 6
Redemption Date .............................. 6
Redemption Price ............................. 6
Regular Record Date .......................... 6
Responsible Officer .......................... 7
</TABLE>
- ------------
NOTE: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE> 4
ii
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Senior Indebtedness........................................ 7
Special Record Date........................................ 7
Stated Maturity............................................ 7
Subsidiary................................................. 7
Trustee.................................................... 8
Trust Indenture Act........................................ 8
Vice President............................................. 8
Section 102. Compliance Certificates and Opinions....................... 8
Section 103. Form of Documents Delivered to Trustee..................... 9
Section 104. Acts of Holders............................................ 9
Section 105. Notices, Etc., to Trustee, Company or Guarantor............ 11
Section 106. Notice to Holders; Waiver.................................. 11
Section 107. Conflict with Trust Indenture Act.......................... 12
Section 108. Effect of Headings and Table of Contents................... 12
Section 109. Successors and Assigns..................................... 12
Section 110. Separability Clause........................................ 12
Section 111. Benefits of Indenture...................................... 12
Section 112. Governing Law.............................................. 12
Section 113. Legal Holidays............................................. 12
ARTICLE TWO
Debenture Forms
Section 201. Forms Generally............................................ 13
Section 202. Form of Face of Debenture.................................. 13
Section 203. Form of Reverse of Debenture............................... 15
Section 204. Form of Guarantee.......................................... 21
Section 205. Form of Trustee's Certificate of Authentication............ 23
ARTICLE THREE
The Debentures
Section 301. Title and Terms............................................ 23
Section 302. Denominations.............................................. 24
Section 303. Execution, Authentication, Delivery and Dating of
Debentures............................................... 24
Section 304. Guarantee.................................................. 25
Section 305. Execution, Authentication, Delivery and Dating............. 25
Section 306. Temporary Debentures....................................... 26
Section 307. Registration, Registration of Transfer and Exchange........ 26
Section 308. Mutilated, Destroyed, Lost and Stolen Debentures........... 28
Section 309. Payment of Interest; Interest Rights Preserved............. 29
Section 310. Persons Deemed Owners...................................... 30
</TABLE>
<PAGE> 5
iii
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 311. Cancellation.............................................. 30
Section 312. Computation of Interest................................... 31
ARTICLE FOUR
Satisfaction and Discharge
Section 401. Satisfaction and Discharge of Indenture................... 31
Section 402. Application of Trust Money................................ 32
Section 403. Release of Paying Agent................................... 33
Section 404. Unclaimed Moneys.......................................... 33
ARTICLE FIVE
Remedies
Section 501. Events of Default......................................... 33
Section 502. Acceleration of Maturity; Rescission and Annulment........ 35
Section 503. Collection of Indebtedness and Suits for Enforcement by
Trustee................................................. 36
Section 504. Trustee May File Proofs of Claim.......................... 37
Section 505. Trustee May Enforce Claims Without Possession of
Debentures.............................................. 38
Section 506. Application of Money Collected............................ 38
Section 507. Limitation on Suits....................................... 39
Section 508. Unconditional Right of Holders to Receive Principal
Premium and Interest and to Convert..................... 40
Section 509. Restoration of Rights and Remedies........................ 40
Section 510. Rights and Remedies Cumulative............................ 40
Section 511. Delay or Omission Not Waiver.............................. 40
Section 512. Control by Holders........................................ 41
Section 513. Waiver of Past Defaults................................... 41
Section 514. Undertaking for Costs..................................... 41
Section 515. Waiver of Stay or Extension Laws.......................... 42
ARTICLE SIX
The Trustee
Section 601. Certain Duties and Responsibilities....................... 42
Section 602. Notice of Defaults........................................ 43
Section 603. Certain Rights of Trustee................................. 44
Section 604. Not Responsible for Recitals or Issuance of Debentures.... 45
Section 605. May Hold Debentures....................................... 45
Section 606. Money Held in Trust....................................... 45
Section 607. Compensation and Reimbursement............................ 46
</TABLE>
<PAGE> 6
iv
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 608. Disqualification; Conflicting Interests ............................. 46
(a) Elimination of Conflicting Interest or Resignation ............ 46
(b) Notice of Failure to Eliminate Conflicting Interest
or Resign ................................................... 46
(c) "Conflicting Interest" Defined ................................ 46
(d) Definitions of Certain Terms Used in This Section ............. 50
(e) Calculation of Percentages of Securities ...................... 51
Section 609. Corporate Trustee Required; Eligibility .............................. 52
Section 610. Resignation and Removal; Appointment of Successor .................... 53
Section 611. Acceptance of Appointment by Successor ............................... 54
Section 612. Merger, Conversion, Consolidation or Succession to Business .......... 55
Section 613. Preferential Collection of Claims Against Company .................... 55
(a) Segregation and Appointment of Certain Collections
by Trustee, Certain Exceptions ............................... 55
(b) Certain Creditor Relationships Excluded from
Segregation and Apportionment ................................ 58
(c) Definitions of Certain Terms Used in This Section .............. 59
Section 614. Appointment of Authenticating Agent .................................. 59
</TABLE>
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
<TABLE>
<CAPTION>
<S> <C>
Section 701. Company to Furnish Trustee Names and Addresses of Holders ............ 61
Section 702. Preservation of Information; Communications to Holders ............... 62
Section 703. Reports by Trustee ................................................... 63
Section 704. Reports by Company and the Guarantor ................................. 65
</TABLE>
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
<TABLE>
<CAPTION>
<S> <C>
Section 801. Company or Guarantor May Consolidate, Etc., Only on Certain Terms .... 66
Section 802. Successor Corporation Substituted .................................... 67
</TABLE>
ARTICLE NINE
Supplemental Indentures
<TABLE>
<CAPTION>
<S> <C>
Section 901. Supplemental Indentures Without Consent of Holders ................... 67
Section 902. Supplemental Indentures with Consent of Holders ...................... 68
Section 903. Execution of Supplemental Indentures ................................. 69
Section 904. Effect of Supplemental Indentures .................................... 69
Section 905. Conformity with Trust Indenture Act .................................. 69
</TABLE>
<PAGE> 7
v
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 906. Reference in Debentures to Supplemental
Indentures ........................................ 70
ARTICLE TEN
Covenants
Section 1001. Payment of Principal, Premium and Interest .......... 70
Section 1002. Maintenance of Office or Agency ..................... 70
Section 1003. Money for Debenture Payments to Be Held in Trust .... 71
Section 1004. Corporate Existence ................................. 72
Section 1005. Statement by Officers as to Default ................. 73
ARTICLE ELEVEN
Redemption of Debentures
Section 1101. Right of Redemption ................................. 73
Section 1102. Applicability of Article ............................ 73
Section 1103. Election to Redeem; Notice to Trustee ............... 73
Section 1104. Selection by Trustee of Debentures to be Redeemed ... 73
Section 1105. Notice of Redemption ................................ 74
Section 1106. Deposit of Redemption Price ......................... 75
Section 1107. Debentures Payable on Redemption Date ............... 75
Section 1108. Debentures Redeemed in Part ......................... 76
ARTICLE TWELVE
Sinking Fund
Section 1201. Sinking Fund Payments ............................... 76
Section 1202. Satisfaction of Sinking Fund Payments with
Debentures ........................................ 76
Section 1203. Redemption of Debentures for Sinking Fund ........... 77
ARTICLE THIRTEEN
Conversion of Debentures
Section 1301. Conversion Privilege and Conversion Price ............ 77
Section 1302. Exercise of Conversion Privilege ..................... 78
Section 1303. Fractions of Shares .................................. 79
Section 1304. Adjustment of Conversion Price ....................... 80
Section 1305. Notice of Adjustment of Conversion Price ............. 82
Section 1306. Notice of Certain Corporate Action ................... 83
Section 1307. Company to Reserve Common Stock ...................... 84
Section 1308. Taxes on Conversions ................................. 84
Section 1309. Cancellation of Converted Debentures ................. 84
Section 1310. Provisions in Case of Consolidation, Merger or
Sale of Assets ..................................... 84
</TABLE>
<PAGE> 8
vi
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 1311. Disclaimer by Trustee of Responsibility for
Certain Matters ................................... 85
ARTICLE FOURTEEN
Subordination
Section 1401. Agreement of Subordination .......................... 85
Section 1402. Payments to Holders of Debentures ................... 86
Section 1403. Subrogation of Debentures ........................... 88
Section 1404. Authorization by Holders of Debentures .............. 89
Section 1405. Notices to Trustee and Senior Indebtedness Holders .. 89
Section 1406. Trustee's Relation to Senior Indebtedness ........... 90
Section 1407. No Impairment of Subordination ...................... 91
Testimonium ........................................................ 92
Signatures and Seals ............................................... 92
Acknowledgments ................................................... 93
</TABLE>
<PAGE> 9
1
INDENTURE, dated as of March 1, 1987, between Maxtor Corporation, a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at 150 River Oaks
Parkway, San Jose, California 95134, Maxtor Corporation, a corporation duly
organized and existing under the laws of the State of California (herein called
the "Guarantor"), having its principal office at 150 River Oaks Parkway, San
Jose, California 95134, and Security Pacific National Bank, a national banking
association, as Trustee (herein called the "Trustee").
Recitals of the Company
The Company has duly authorized the creation of an issue of its 5-3/4%
Convertible Subordinated Debentures due March 1, 2012 (herein called the
"Debentures") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.
All things necessary to make the Debentures, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
Recitals of the Guarantor
The Guarantor desires to make the Guarantees provided for herein and to
provide therefor the Guarantor has duly authorized the execution and delivery
of this Indenture.
All things necessary to make the Guarantees, when executed by the
Guarantor and endorsed on the Debentures and delivered hereunder, the valid
obligations of the Guarantor, and to make this Indenture a valid agreement of
the Guarantor, in accordance with their and its terms, have been done.
Now, Therefore, This Indenture Witnesseth:
For and in consideration of the premises and the purchase of the
Debentures by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Debentures, as
follows:
<PAGE> 10
2
ARTICLE ONE
Definitions and Other Provisions of General Application
Section 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein with are defined in the Trust
Indenture Act, either directly or by reference herein, have the meanings
assigned to them therein;
(3) all accounting terms (including without limitation "capital
leases" and "retained earnings") not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and, except as otherwise herein expressly provided, the term "generally
accepted accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are generally
accepted at the date of such computation; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"Act" when used with respect to any Holder has the meaning specified in
Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the trustee to act
on behalf of the Trustee to authenticate Debentures.
<PAGE> 11
3
"Board of Directors" means either the board of directors of the Company or
the Guarantor, as the case may be, or any duly authorized committee of such
board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company or the Guarantor, as the case may be,
to have been duly adopted by the Board of Directors and to be in full force and
effect on the date of such certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in the City of New York are
authorized or obligated by law or executive order to close.
"Closing Price" means with respect to the Common Stock of the Company on
any day, (i) the last reported sale price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the New York Stock Exchange, or
(ii) if the Common Stock is not listed or admitted to trading on such Exchange,
the last reported sales price regular way, or in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices regular way, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading, or (iii) if the Common Stock is
not listed or admitted to trading on any national securities exchange, the
closing sales price as reported by the National Association of Securities
Dealers' Automated Quotation System ("NASDAQ"), and if the closing sales price
is not reported by NASDAQ, the average of the closing bid and asked prices as
furnished by any New York Stock Exchange member firm selected from time to time
by the Company for that purpose.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or, if at
any time after the execution of this instrument such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act,
then the body performing such duties at such time.
"Common Stock" means any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which is not subject to redemption by the Company. However, subject to the
provisions of Section 1310, shares issuable on conversion of Debentures shall
include only shares of the class designated as Common Stock of the Company at
the date of this Indenture or shares of any class or
<PAGE> 12
4
classes resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which are not subject to redemption by the Company; provided
that if at any time there shall be more than one such resulting class, the
shares of each such class then so issuable shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor corporation shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company or the Guarantor, as the case may be, by its
Chairman of the Board, a Vice Chairman, its President or a Vice President, and
by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary, and delivered to the Trustee.
"conversion price" has the meaning specified in Section 1301.
"Corporate Trust Office" means the principal office of the Trustee in the
Borough of Manhattan, The City of New York, at which at any particular time its
corporate trust business shall be administered.
"corporation" includes corporations, associations, companies and business
trusts.
"Debenture Register" and "Debenture Registrar" have the respective
meanings specified in Section 307.
"Defaulted Interest" has the meaning specified in Section 309.
"Event of Default" has the meaning specified in Section 501.
"Guarantee" means any guarantee of the Guarantor endorsed on a Debenture
authenticated and delivered pursuant to this Indenture and shall include the
guarantee set forth in Section 304.
"Guarantor" means the Person named as the Guarantor in the first paragraph
of this instrument until a successor corporation shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Guarantor" shall mean such successor corporation.
<PAGE> 13
5
"Holder" means a Person in whose name a Debenture is registered in the
Debenture Register.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Debentures.
"Maturity" when used with respect to any Debenture means the date on which
the principal of such Debenture becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration,
call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman, the President or a Vice President, and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of
the Company or the Guarantor, as the case may be, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be an
employee of or counsel for the Company or the Guarantor, and who shall be
acceptable to the Trustee.
"Outstanding" when used with respect to Debentures means, as of the date
of determination, all Debentures theretofore authenticated and delivered under
this Indenture, except:
(i) Debentures theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Debentures for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any Paying
Agent (other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the Holders
of such Debentures; provided that, if such Debentures are to be redeemed,
notice of such redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made; and
(iii) Debentures in exchange for or in lieu of which other Debentures
have been authenticated and delivered pursuant to this Indenture;
<PAGE> 14
6
provided, however, that in determining whether the Holder of the requisite
principal amount of the Outstanding Debentures have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Debentures owned
by the Company, the Guarantor or any other obligor upon the Debentures or any
Affiliate of the Company, the Guarantor or such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Debentures which the
Trustee knows to be so owned shall be so disregarded. Debentures so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Debentures and that the pledgee is not the Company, the
Guarantor or any other obligor upon the Debentures or any Affiliate of the
Company, the Guarantor or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Debentures on behalf of
the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Debenture" of any particular Debenture means every previous
Debenture evidencing all or a portion of the same debt as that evidenced by
such particular Debenture; and, for the purposes of this definition, any
Debenture authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Debenture shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Debenture.
"Redemption Date", when used with respect to any Debenture to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Debenture to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the February 15 or August 15 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
<PAGE> 15
7
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust officer,
the controller or any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Senior Indebtedness" means the principal of and premium, if any, and
unpaid interest on (a) indebtedness (other than the Debentures) of the Company
or the Guarantor, as the case may be, whether or not secured and whether
heretofore or hereafter (i) incurred for borrowed money or (ii) evidenced by a
note or similar instrument given in connection with the acquisition by the
Company or the Guarantor of any business, properties or assets, including
securities (but not including any account payable or other obligation created
or assumed by the Company or the Guarantor in the ordinary course of business
in connection with the obtaining of materials or services), (b) any refundings,
renewals, extensions or deferrals of any such indebtedness, and (c) obligations
under capital leases, in each case for the payment of which the Company or the
Guarantor is liable directly or indirectly by guarantee, letter of credit,
obligation to purchase or acquire or otherwise, unless the terms of the
instrument evidencing such indebtedness or capital lease or pursuant to which
such indebtedness or capital lease is outstanding specifically provide that
such indebtedness or capital lease is not superior in right of payment to the
Debentures.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Debenture or any
installment of interest thereon, means the date specified in such Debenture as
the fixed date on which the principal of such Debenture or such installment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or the
Guarantor or by one or more other Subsidiaries, or by the Company or the
<PAGE> 16
8
Guarantor and one or more other Subsidiaries. For the purposes of this
definition, "voting stock" means stock which ordinarily has voting power for
the election of directors, whether at all times or only so long as no senior
class of stock has such voting power by reason of any contingency.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall
mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed, except as provided in
Section 905.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
Section 102. Compliance Certificates and Opinions.
Upon any application or request by the Company or the Guarantor to the
Trustee to take any action under any provision of this Indenture, the Company
or the Guarantor, as the case may be, shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
<PAGE> 17
9
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company or the Guarantor
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or Opinion of Counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company or the
Guarantor, as the case may be, stating that the information with respect to
such factual matters is in the possession of the Company or the Guarantor, as
the case may be, unless such counsel knows, or in the exercise of reasonable
care should know, that the certificate or opinion or representations with
respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent
<PAGE> 18
10
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company or the Guarantor, as the case may be. Such instrument or instruments
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and (subject to
Section 601) conclusive in favor of the Trustee and the Company or the
Guarantor, as the case may be, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other reasonable manner which the Trustee deems sufficient.
(c) The ownership of Debentures shall be proved by the Debenture Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Debenture shall bind every future
Holder of the same Debenture and the Holder of every Debenture issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee, the
Company or the Guarantor, as the case may be, in reliance thereon, whether or
not notation of such action is made upon such Debenture.
<PAGE> 19
11
Section 105. Notices, Etc., to Trustee, Company or Guarantor.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company or the Guarantor, as
the case may be, shall be sufficient for every purpose hereunder if made,
given, furnished or filed in writing to or with the Trustee at 33
Montgomery Street, 11th Floor, San Francisco, CA 94105, Attention: Maxtor
Administrator, or
(2) the Company or the Guarantor, as the case may be, by the Trustee
or by any Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to the Company or the Guarantor, as the case may be,
addressed to it at the address of its principal office specified in the
first paragraph of this instrument or at any other address previously
furnished in writing to the Trustee by the Company or the Guarantor, as the
case may be.
Section 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event or report to
Holders, such notice or report shall be sufficiently given (unless otherwise
herein expressly provided) if in writing and mailed, first-class postage
prepaid, to each Holder affected by such event, at his address as it appears in
the Debenture Register (and to such other addressees a may be required in the
case of such notice or report under Section 313(c) of the Trust Indenture Act),
not later than the latest date, and not earlier than the earliest date,
prescribed for the giving of such notice or report. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
<PAGE> 20
12
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Section 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required provision shall
control.
Section 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company, or the
Guarantor, shall bind its successors and assigns, whether so expressed or not.
Section 110. Separability Clause.
In case any provision in this Indenture, the Debentures or the Guarantees
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 111. Benefits of Indenture.
Nothing in this Indenture, the Debentures or the Guarantees, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the holders of Senior Indebtedness and the Holders of
Debentures, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
Section 112. Governing Law.
This Indenture and the Debentures shall be governed by and construed in
accordance with the laws of the State of New York.
Section 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Debenture or the last date on which a Holder has the right to
convert his Debentures shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Debentures) payment of interest or
principal (and premium, if any) or conversion of the Debentures need not be
made on such date, but may be made on the next succeeding
<PAGE> 21
13
Business Day with the same force and effect as if made on the Interest Payment
Date or Redemption Date, or at the Stated Maturity, or on such last day for
conversion, provided that no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date or Stated Maturity, as the
case may be.
ARTICLE TWO
DEBENTURE FORMS
Section 201. Forms Generally.
The Debentures and the Trustee's certificates of authentication shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may
consistently herewith, be determined by the officers executing such Debentures,
as evidenced by their execution of such Debentures.
The definitive Debentures shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may
be produced in any other matter permitted by the rules of any securities
exchange on which the Debentures may be listed, all as determined by the
officers executing such Debentures, as evidenced by their execution of such
Debentures.
Section 202. Form of Face Debenture.
MAXTOR CORPORATION
5-3/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE MARCH 1, 2012
No. $
------------ -----------
MAXTOR CORPORATION, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company," which term includes
any successor corporation under the Indenture hereinafter referred to), for
value received, hereby promises to pay to ,
or registered assigns, the principal sum of Dollars on March
1, 2012, and to pay interest thereon from March 5,1987 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semiannually on March 1 and
<PAGE> 22
14
September 1 in each year, commencing September 1, 1987 at the rate of 5-3/4%
per annum, until the principal hereof is paid or made available for payment.
The interest so payable, and punctuality paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Debenture (or one or more Predecessor Debentures) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the February 15 or August 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Debenture (or one or more Predecessor
Debentures) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Debentures not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Debentures may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture. Payment of the
principal of (and premium, if any) and interest on this Debenture will be made
at the office or agency of the Company maintained for that purpose in the
Borough of Manhattan, The City of New York, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that at the option of the
Company payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Debenture Register.
Reference is hereby made to the further provisions of this Debenture set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Debenture
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
<PAGE> 23
15
IN WITNESS WHEREOF, Maxtor Corporation has caused this instrument to be
duly executed under its corporate seal.
Dated:
MAXTOR CORPORATION
By
---------------------------------
President
Attest:
- ------------------------------------
Secretary
SECTION 203. Form of Reverse of Debenture.
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its 5-3/4% Convertible Subordinated Debentures due
March 1, 2012 (herein called the "Debentures"), limited in aggregate principal
amount to not more than $100,000,000 issued and to be issued under an Indenture,
dated as of March 1, 1987 (herein called the "Indenture"), between the Company,
Maxtor Corporation, a corporation duly organized and existing under the laws of
the State of California (herein called the "Guarantor" which term includes any
successor guarantor under the Indenture hereinafter referred to) and Security
Pacific National Bank as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Guarantor, the Trustee, the holders of Senior Indebtedness and
the Holders of the Debentures and of the terms upon which the Debentures are,
and are to be, authenticated and delivered.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Debenture is entitled, at his option, at any time on or before
the close of business on March 1, 2012, or in case this Debenture or a portion
hereof is called for redemption, then in respect of this Debenture or such
portion hereof until and including, but (unless the Company and the Guarantor
default in making the payment due upon redemption) not after, the close
<PAGE> 24
16
of business on the business day prior to the Redemption Date, to convert this
Debenture (or any portion of the principal amount hereof which is $1,000 or an
integral multiple thereof), at the principal amount hereof, or of such portion,
into fully paid and nonassessable shares (calculated as to each conversion to
the nearest 1/100 of a share) of Common Stock of the Company at a conversion
price equal to $40.00 aggregate principal amount of Debentures for each share
of Common Stock (or at the current adjusted conversion price if an adjustment
has been made as provided in the Indenture) by surrender of this Debenture,
duly endorsed or assigned to the Company or in blank, to the Company at its
office or agency maintained for such purpose in the Borough of Manhattan, The
City of New York, accompanied by written notice to the Company that the Holder
hereof elects to convert this Debenture, or if less than the entire principal
amount hereof is to be converted, the portion hereof to be converted, and, in
case such surrender shall be made during the period from the close of business
on any Regular Record Date next preceding any Interest Payment Date to the
opening of business on such Interest Payment Date (unless this Debenture or the
portion thereof being converted has been called for redemption during such
period), also accompanied by payment in New York Clearing House or other funds
acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of this Debenture then being
converted Subject to the aforesaid requirement for payment and, in the case
of a conversion after the Regular Record Date next preceding any Interest
Payment Date and on or before such Interest Payment Date, to the right of the
Holder of this Debenture (or any Predecessor Debenture) of record at such
Regular Record Date to receive an installment of interest (with certain
exceptions provided in the Indenture), no payment or adjustment is to be made
on conversion for interest accrued hereon or for dividends on the Common Stock
issued on conversion. No fractions of shares or scrip representing fractions of
shares will be issued on conversion, but instead of any fractional interest the
Company shall pay a cash adjustment as provided in the Indenture. The
conversion price is subject to adjustment as provided in the Indenture. In
addition, the Indenture provides that in case of certain consolidations or
mergers to which the Company is a party or the sale or transfer of all or
substantially all of the assets of the Company, the Indenture shall be amended,
without the consent of any Holders of Debentures, so that this Debenture, if
then outstanding, will be convertible thereafter, during the period this
Debenture shall be convertible as specified above, only into the
<PAGE> 25
17
kind and amount of securities, cash and other property receivable upon the
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock of the Company into which this Debenture might have been converted
immediately prior to such consolidation, merger, sale or transfer.
The Debentures are subject to redemption at any time, upon not less than 30
days' nor more than 60 days' notice by mail, as a whole or in part, at the
election of the Company, at the following Redemption Prices (expressed as
percentages of the principal amount), if redeemed during the twelve-month period
beginning March 1 of the year indicated, plus accrued interest on the date of
redemption:
<TABLE>
<CAPTION>
Redemption Redemption
Year Price Year Price
- ---- ---------- ---- ----------
<S> <C> <C> <C>
1987........................ 105.750% 1992.................... 102.875%
1988........................ 105.175% 1993.................... 102.300%
1989........................ 104.600% 1994.................... 101.725%
1990........................ 104.025% 1995.................... 101.150%
1991........................ 103.450% 1996.................... 100.575%
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount,
together in the case of any such redemption (whether through operation of the
sinking fund or otherwise) with accrued interest to the Redemption Date, but
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Debentures, or one or more
Predecessor Debentures, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.
Notwithstanding the foregoing, the Company may not, prior to March 1, 1989,
redeem any Debentures unless the Closing Price of the Common Stock on twenty of
the thirty consecutive days on which there was such a price immediately
preceding the fifth day prior to the initial publication of the notice of such
redemption is at least 150% of the conversion price in effect at the close of
business on such day.
The sinking fund provides for the redemption on March 1 in each year
beginning with March 1, 1998 and ending with March 1, 2011 of 5% of the maximum
aggregate principal amount of Debentures issued, at a Redemption Price equal to
100% of the principal amount together with interest accrued to the date fixed
for redemption. Debentures acquired or redeemed by the Company otherwise than
through sinking fund payments may be credited against subsequent sinking fund
payments otherwise required to be made.
<PAGE> 26
18
In the event of redemption or conversion of this Debenture in part only, a
new Debenture or Debentures for the unredeemed or unconverted portion hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.
The indebtedness evidenced by the Debentures is, to the extent provided in
the Indenture, subordinated and subject in right of payment to the prior payment
in full of all Senior Indebtedness of the Company, and this Debenture is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Debenture, by his acceptance hereof, agrees to be bound by such provisions
of the Indenture and authorizes and directs the Trustee to take such action on
his behalf as may be necessary or appropriate to acknowledge or effectuate the
subordination of this Debenture as provided in the Indenture and appoints the
Trustee his attorney-in-fact for any and all such purposes. Each Holder of this
Debenture, by his acceptance hereof, agrees that each holder of Senior
Indebtedness, whether created or acquired before or after the issuance of the
Debentures, shall be deemed conclusively to have relied on such provisions in
acquiring and continuing to hold, or in continuing to hold, such Senior
Indebtedness.
If an Event of Default shall occur and be continuing, the principal of all
the Debentures may be declared due and payable in the manner and with the affect
provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company or the Guarantor and the rights and obligations of the Company or the
Guarantor and the rights of the Holders of the Debentures under the Indenture at
any time by the Company or the Guarantor, as the case may be, and the Trustee
with the consent of the Holders of 66 2/3% in aggregate principal amount of the
Debentures at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Debentures at the time Outstanding, on behalf of the Holders of all the
Debentures, to waive compliance by the Company or the Guarantor, as the case may
be, with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Debenture shall be conclusive and binding upon such Holder and upon all
future Holders of this Debenture and of any Debenture issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
<PAGE> 27
19
whether or not notation of such consent or waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture
of the Guarantee endorsed hereon or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of (and premium, if any) and interest on this Debenture at the times,
place and rate, and in the coin or currency, herein prescribed or to convert
this Debenture as provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Debenture is registrable in the Debenture
Register, upon surrender of this Debenture for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Debenture Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Debenture, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Debentures are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Debentures are
exchangeable for a like aggregate principal amount of Debentures of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made to the Holder for any such registration
of transfer or exchange, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to due presentment of this Debenture for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Debenture is registered as the owner hereof for
all purposes, whether or not this Debenture be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
<PAGE> 28
20
(FORM OF CONVERSION NOTICE)
TO MAXTOR CORPORATION:
The undersigned owner of this Debenture hereby irrevocably exercises the
option to convert this Debenture, or portion hereof (which is $1,000 or an
integral multiple thereof) below designated, into shares of Common Stock of
Maxtor Corporation in accordance with the terms of the Indenture referred to in
this Debenture, and directs that the shares issuable and deliverable upon the
conversion, together with any check in payment for fractional shares and any
Debentures representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If shares are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto. Any amount required to be paid by the undersigned on account
of interest accompanies this Debenture.
Dated:
Fill in for registration of shares of
Common Stock and Debentures if
to be issued otherwise than to the
registered holder.
------------------------------------------
Signature
- -------------------------------------
Name
- -------------------------------------
Address
- -------------------------------------
Please print name and address
(including zip code number)
SOCIAL SECURITY OR OTHER
TAXPAYER IDENTIFYING NUMBER
- -------------------------------------
Principal Amount to be Converted
(in an integral multiple of $1,000, if
less than all):
$____
<PAGE> 29
21
Section 204. Form of Guarantee.
GUARANTEE OF MAXTOR CORPORATION
FOR VALUE RECEIVED, Maxtor Corporation, a corporation duly organized and
existing under the laws of the State of California (herein called the
"Guarantor" which term includes any successor corporation under the
Indenture referred to in the Debenture upon which this Guarantee is endorsed),
hereby unconditionally guarantees to the Holder (which term, as well as other
capitalized terms used herein, shall have the respective meanings assigned in
the said Indenture, unless otherwise defined herein) of the Debenture
authenticated and delivered by the Trustee upon which this Guarantee is
endorsed the due and punctual payment of the principal of (and premium, if any)
and interest on such Debenture when and as the same shall become due and
payable, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise, according to the terms of such Debenture and all
of the Indenture referred to therein. In case of the failure of the Company
punctually to make any such principal, premium or interest payment, the
Guarantor hereby agrees to cause any such payment to be made punctually when
and as the same shall become due and payable, whether at the Stated Maturity or
by declaration of acceleration, call for redemption or otherwise, and if such
payment were made by the Company. The Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of such Debenture or said Indenture, the absence
of any action to enforce the same, the waiver or consent by the Holder of such
Debenture or by the Trustee with respect to any provisions thereof or of said
Indenture, the recovery of any judgment against the Company or any action to
enforce the same or any other circumstance which might otherwise constitute
legal or equitable discharge or defense of a guarantor. The Guarantor hereby
waives diligence, presentment, demand of payment, filing claims with a court
in the event of merger or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest or notice with respect to such
Debenture or the indebtedness evidenced thereby and all demands whatsoever, and
convenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in such Debenture and in the Guarantee.
No reference herein to the Indenture and no provision of this Guarantee or
of the Indenture shall alter or impair the Guarantee of the Guarantor which is
absolute and unconditional, of the due and punctual payment of the
<PAGE> 30
22
principal of (and premium,if any) and interest on the Debenture upon which this
Guarantee is endorsed.
This Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Debenture upon which this Guarantee is
endorsed shall have been executed by the Trustee under the Indenture referred
to above by the manual signature of one of its authorized officers.
The indebtedness evidenced by the Guarantees of the Debentures is, to the
extent provided in the Indenture, subordinated and subject in right of payment
to the prior payment in full of all Senior Indebtedness of the Guarantor, and
this Guarantee is issued subject to the provisions of the Indenture with
respect thereto. Each Holder of this Debenture, by his acceptance hereof,
agrees to be bound by such provisions of the Indenture and authorizes and
directs the Trustee to take such action on his behalf as may be necessary or
appropriate to acknowledge or effectuate the subordination of this Guarantee as
provided in the Indenture and appoints the Trustee his attorney-in-fact for any
and all such purposes. Each Holder of this debenture, by his acceptance hereof,
agrees that each holder of Senior Indebtedness of the Guarantor, whether
created or acquired before or after the issuance of the Debenture, shall be
deemed conclusively to have relied on such provisions in acquiring or
continuing to hold, such Senior Indebtedness.
If an Event of Default shall occur and be continuing, the principal of all
the Debentures may be declared due and payable in the manner and with the
effect provided in the Indenture.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be duly
executed under its corporate seal.
Dated:
MAXTOR CORPORATION
By
-------------------------------------
President
Attest:
- ---------------------------------------
Secretary
<PAGE> 31
23
Section 205. Form of Trustee's Certificate of Authentication.
This is one of the Debentures referred to in the within-mentioned
Indenture.
Security Pacific National Bank
as Trustee
By
----------------------------
Authorized Officer
ARTICLE THREE
The Debentures
Section 301. Title and Terms.
The aggregate principal amount of Debentures which may be authenticated and
delivered under this Indenture is limited to not more than the aggregate
principal amount of Debentures specified in the Officer's Certificate referred
to in the third paragraph of Section 303 except for Debentures authenticated
and delivered upon registration of transfer of, or in exchange for, or in lieu
of, other Debentures pursuant to Section 305, 306, 307, 906, 1108 or 1302.
The Debentures shall be known and designated as the "5 1/4% Convertible
Subordinated Debentures due March 1, 2012" of the Company. Their Stated
Maturity shall be March 1, 2012, and they shall bear interest at the rate of
5 3/4% per annum, from March 5, 1987 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, as the case may be,
payable semiannually on March 1 and September 1, commencing September 1, 1987,
until the principal thereof is paid or made available for payment.
The principal of (and premium, if any) and interest on the Debentures
shall be payable at the office or agency of the Company in the Borough of
Manhattan, The City of New York maintained for such purpose and at any other
office or agency maintained by the Company for such purpose; provided, however,
that at the option of the Company payment of interest may be made by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Debenture Register.
The Debentures shall be redeemable as provided in Article Eleven.
<PAGE> 32
24
The Debentures shall be entitled to the benefits, and be redeemable
through operation, of the sinking fund as provided in Article Twelve.
The Debentures shall be convertible into Common Stock of the Company as
provided in Article Thirteen.
The Debentures shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Fourteen.
Section 302. Denominations.
The Debentures shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
Section 303. Execution, Authentication, Delivery and Dating of Debentures.
The Debentures shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman, its President or one of its Vice Presidents,
under its corporate seal reproduced thereon attested by its Secretary or one of
its Assistant Secretaries. The signature of any of these officers on the
Debentures may be manual or facsimile.
Debentures bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Debentures or did not
hold such offices at the date of such Debentures.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Debentures executed by the Company to the
Trustee for authentication, together with a Company Order for the
authentication and delivery of such Debentures; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Debentures as in
this Indenture provided and not otherwise.
Each Debenture shall be dated the date of its authentication.
No Debenture shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Debenture a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Debenture shall be conclusive evidence, and the only evidence, that such
Debenture has been duly authenticated and delivered hereunder.
<PAGE> 33
25
Section 304. Guarantee.
The Guarantor hereby unconditionally guarantees to each Holder of a
Debenture authenticated and delivered by the Trustee upon which a Guarantee is
endorsed, and to each Holder of any coupon appertaining thereto, the due and
punctual payment of the principal of (and premium, if any) and interest on such
Debenture when and as the same shall become due and payable, whether at the
Stated Maturity or by declaration of acceleration, call for redemption or
otherwise, according to the terms of such Debenture and of this Indenture. In
case of the failure of the Company punctually to make any such principal,
premium or interest payment, the Guarantor hereby agrees to cause any such
payment to be made punctually when and as the same shall become due and
payable, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise, and as if such payment were being made by the
Company. The Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of
such Debenture or this Indenture, the absence of any action to enforce the
same, the waiver or consent by the Holder of such Debenture or by the Trustee
with respect to any provisions thereof or of this Indenture, the recovery of
any judgment against the Company or any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor. The Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of merger or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest or notice with respect to such Debenture or the indebtedness
evidenced thereby and all demands whatsoever, and covenants that this Guarantee
will not be discharged except by complete performance of the obligations
contained in the Debentures and in the Guarantees.
The Guarantees shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Fourteen.
Section 305. Execution, Authentication, Delivery and Dating.
The Guarantees shall be executed on behalf of the Guarantor by its
Chairman of the Board, its Vice Chairman, its President or one of its Vice
Presidents, under is corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Debentures may be manual or facsimile.
<PAGE> 34
26
Guarantees bearing the manual or facsimile signatures of individuals who
where at any time the proper officers of the Guarantor shall bind the
Guarantor, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Guarantor or
did not hold such offices at the date of such Guarantees.
Each Guarantee shall be dated the date of the Debenture on which such
Guarantee is endorsed.
The delivery of any Debenture by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee endorsed
thereon on behalf of the Guarantor.
Section 306. Temporary Debentures.
Pending the preparation of definitive Debentures, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Debentures which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Debentures in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Debentures may determine, as evidenced by their
execution of such Debentures.
If temporary Debentures are issued, the Company will cause definitive
Debentures to be prepared without unreasonable delay. After the preparation of
definitive Debentures, the temporary Debentures shall be exchangeable for
definitive Debentures upon surrender of the temporary Debentures at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Debentures the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Debentures
of authorized denominations. Until so exchanged the temporary Debentures shall
in all respects be entitled to the same benefits under this Indenture as
definitive Debentures.
Section 307. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Debenture Register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the
<PAGE> 35
27
registration of Debentures and of transfers of Debentures. The Trustee is
hereby appointed "Debenture Registrar" for the purpose of registering
Debentures and transfers of Debentures as herein provided.
Upon surrender for registration of transfer of any Debenture at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Debentures of any authorized denominations, of a like aggregate principal
amount.
At the option of the Holder, Debentures may be exchanged for other
Debentures of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Debentures to be exchanged at such office or
agency. Whenever any Debentures are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Debentures
which the Holder making the exchange is entitled to receive.
All Debentures issued upon any registration of transfer or exchange of
Debentures shall be valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Debentures
surrendered upon such registration of transfer or exchange.
Every Debenture presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Debenture Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Debentures, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Debentures, other than
exchanges pursuant to Section 306, 906, 1108 or 1302 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Debenture during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Debentures selected for redemption under Section 1104 and ending at the close
of business on the day of such mailing, or (ii) to register the transfer of or
<PAGE> 36
28
exchange any Debenture so selected for redemption in whole or in part, except
the unredeemed portion of any Debenture being redeemed in part.
Section 308. Mutilated, Destroyed, Lost and Stolen Debentures.
If any mutilated Debenture is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Debenture of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Debenture and (ii)
such bond, security or indemnity as may be required by them to save each of them
and any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Debenture has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Debenture, a new Debenture of like tenor and principal amount and bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Debenture has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Debenture, pay such Debenture.
Upon the issuance of any new Debenture under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Debenture issued pursuant to this Section in lieu of any
destroyed, lost or stolen Debenture shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost of
stolen Debenture shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Debentures duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Debentures.
<PAGE> 37
29
Section 309. Payment of Interest; Interest Rights Preserved.
Interest on any Debenture which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Debenture (or one or more Predecessor Debentures) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Debenture which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Debentures (or their respective
Predecessor Debentures) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Debenture and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix a
special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears in
the Debenture Register, not less than 10 days prior to such Special Record
Date therefor having been so mailed, such Defaulted Interest
<PAGE> 38
30
shall be paid to the Persons in whose names the Debentures (or their respective
Predecessor Debentures) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Debentures may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this Clause, such manner of payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Debenture
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Debenture shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Debenture.
In the case of any Debenture which is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Debenture whose Maturity is prior to such Interest Payment Date), interest
whose Stated Maturity is on such Interest Payment Date shall be payable on such
Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Debenture (or one or more Predecessor Debentures) is
registered at the close of business on such Regular Record Date.
SECTION 310. Persons Deemed Owners.
Prior to due presentment of a Debenture for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Debenture is registered as the owner of such
Debenture for the purpose of receiving payment of principal of (and premium, if
any) and (subject to Section 309) interest on such Debenture and for all other
purposes whatsoever, whether or not such Debenture be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 311. Cancellation.
All Debentures surrendered for payment, redemption, registration of
transfer or exchange or conversion or for credit against any sinking fund
<PAGE> 39
31
payment pursuant to Section 1202 shall, if surrendered to any Person other than
the Trustee, be delivered to the Trustee and shall be promptly cancelled by it.
The Company may at any time deliver to the Trustee for cancellation any
Debentures previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Debentures so delivered
shall be promptly cancelled by the Trustee. No Debentures shall be authenticated
in lieu of or in exchange for any Debentures cancelled as provided in this
Section, except as expressly permitted by this Indenture. All cancelled
Debentures held by the Trustee shall be disposed of as directed by a Company
Order.
Section 312. Computation of Interest.
Interest on the Debentures shall be computed on the basis of a year of
twelve 30-day months.
ARTICLE FOUR
Satisfaction and Discharge
Section 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Debentures herein expressly provided for), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Debentures theretofore authenticated and delivered
(other than (i) Debentures which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 308 and
(ii) Debentures for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
(B) all such Debentures not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
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(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company or the Guarantor, in the case of (i), (ii) or (iii)
above, has deposited or caused to be deposited with the Trustee as
trust funds in trust for the purpose an amount sufficient to pay and
discharge the entire indebtedness on such Debentures not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any) and interest to the date of such deposit (in the case of
Debentures which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be.
(2) the Company or the Guarantor has paid or caused to be paid all
other sums payable hereunder by the Company and the Guarantor; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company and the Guarantor to the Trustee under Section 607,
the obligations of the Trustee to any Authenticating Agent under Section 614
and, if money shall have been deposited with the Trustee pursuant to sub-clause
(B) of clause (1) of this Section, the obligations of the Trustee under Section
402 and the last paragraph of Section 1003, shall survive.
Section 402. Application of Trust Money.
Subject to the provisions of Section 1003, all money deposited with the
Trustee pursuant to Section 401 shall be held in trust and applied by it, in
accordance with the provisions of the Debentures and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal (and premium, if any) and interest for whose
payment such money has been deposited with the Trustee. All moneys deposited
with the Trustee pursuant to Section 401 (and held by it or any Paying Agent)
for the payment of Debentures subsequently converted shall be returned to the
Company upon Company Request.
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Section 403. Release of Paying Agent.
In connection with the satisfaction and discharge of this Indenture all
moneys then held by any Paying Agent under the provisions of this Indenture
shall, upon demand of the Company, be paid to the Trustee and thereupon such
Paying Agent shall be released from all further liability with respect to such
moneys.
Section 404. Unclaimed Moneys.
Any moneys deposited with or paid to the Trustee or any Paying Agent for
the payment of the principal of (and premium, if any) or interest on any
Debenture and not applied but remaining unclaimed for two years after the date
upon which such principal (and premium, if any) or interest shall have become
due and payable, shall be repaid to the Company by the Trustee or such Paying
Agent on demand and the Holder of such Debenture shall thereafter look only to
the Company for any payment which such Holder may be entitled to collect and all
liability of the Trustee or any Paying Agent with respect to such moneys shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment may at the expense of the
Company cause to be published once a week for two successive weeks (in each case
on any day of the week) in a newspaper in the Borough of Manhattan, New York,
New York, a notice that said moneys have not been so applied and that after a
date named therein any unclaimed balance of said moneys then remaining will be
returned to the Company. It shall not be necessary for more than one such
publication to be made in the same newspaper.
ARTICLE FIVE
Remedies
Section 501. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article Fourteen or be voluntary or involuntary
or be effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body):
(1) default in the payment of any interest upon any Debenture when it
becomes due and payable, and continuance of such default for a period of 30
days; or
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(2) default in the payment of the principal of (or premium, if any,
on) any Debenture at its Maturity; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of Sections 1201 and 1203; or
(4) default in the performance, or breach, of any covenant or
agreement of the Company or the Guarantor, in this Indenture (other than a
covenant or agreement a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and continuance of
such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Company and the Guarantor by the
Trustee or to the Company, the Guarantor and the Trustee by the Holders of
at least 25% in aggregate principal amount of the Outstanding Debentures a
written notice specifying such defaults or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder;
or
(5) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed in excess of $10,000,000 by the Company or
the Guarantor under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed in excess of $10,000,000 by the Company or
the Guarantor, whether such indebtedness now exists or shall hereafter be
created, which default (i) shall consist of a failure to pay such
indebtedness at final maturity and after the expiration of any applicable
grace period or (ii) shall have resulted in such indebtedness becoming or
being declared due and payable prior to the date on which it would
otherwise have become due and payable, without such acceleration having
been rescinded or annulled, or such indebtedness having been discharged,
within a period of 10 days after there shall have been given, by
registered or certified mail, to the Company and the Guarantor by the
Trustee or to the Company, the Guarantor and the Trustee by the Holders of
at least 25% in aggregate principal amount of the Outstanding Debentures a
written notice specifying such default and requiring the Company to cause
such acceleration to be rescinded or annulled or cause such indebtedness
to be discharged and stating that such notice is a "Notice of Default"
hereunder, provided, however, that, subject to the provisions of Section
601 and 602, the Trustee shall not be deemed to have knowledge of such
default unless either (A) a Responsible Officer in the Corporate Trust
Office of the Trustee shall have actual knowledge of such default or (B)
the Trustee
<PAGE> 43
35
shall have received written notice thereof from the Company, from the
Guarantor, from any Holder, from the holder of any such indebtedness or
from the trustee under any such mortgage, indenture or other instrument; or
(6) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or the Guarantor a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or the Guarantor under Federal bankruptcy law or any other
applicable Federal or State law, or appointing a receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company
or the Guarantor or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of any
such decree or order unstayed and in effect for a period of 60 consecutive
days; or
(7) the institution by the Company or the Guarantor of proceedings
to be adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it or a petition or answer or consent seeking reorganization or
relief under Federal bankruptcy law or any other applicable Federal or
State law, or the consent by it to the filing of such petition or to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Company or the Guarantor or of any substantial
part of its property, or the making by it of an assignment for the benefit
of creditors or the admission by it in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action by
the Company or the Guarantor in furtherance of any such action.
Section 502. Acceleration of Maturity ; Rescission and Annulment.
If an Event of Default occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Debentures may declare the principal of
all the Debentures to be due and payable immediately, by a notice in
writing to the Company and the Guarantor (and to the Trustee if given by
Holders), and upon any such declaration such principal shall become
immediately due and payable.
<PAGE> 44
36
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in aggregate principal amount of the Outstanding Debentures, by written notice
to the Company, the Guarantor and the Trustee, may rescind and annual such
declaration and its consequences if
(1) the Company or the Guarantor has paid or deposited with the
Trustee a sum sufficient to pay
(A) all overdue installments of interest on all Debentures.
(B) the principal of (and premium, if any, on) any Debentures
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Debentures,
(C) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest at the rate borne by
the Debentures, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default, other than the nonpayment of the principal
of Debentures which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
Each of the Company and the Guarantor covenant that if
(1) default is made in the payment of any installment of interest on
any Debenture when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium,
if any, on) any Debenture at the Maturity thereof,
<PAGE> 45
37
the Company or the Guarantor, as the case may be, will, upon demand of the
Trustee, pay to it, for he benefit of the Holders of such Debentures, the whole
amount then due and payable on such debentures for principal (and premium, if
any) and interest, with interest upon the overdue principal (and premium, if
any) and, to the extent that payment of such interest shall be legally
enforceable, upon overdue installments of interest, at the rate borne by the
Debentures; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company and the Guarantor fail to pay such amounts forthwith upon
such demand, the Trustee, in its own name and as trustee of an express trust,
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company, the Guarantor or any other obligor upon
the Debentures and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company, the Guarantor or any
other obligor upon the Debentures, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, the Guarantor or any other obligor
upon the Debentures or the property of the Company, the Guarantor or such other
obligor or their creditors, the Trustee (irrespective of whether the principal
of the Debentures shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Company or the Guarantor for the payment of overdue
principal or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise.
<PAGE> 46
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(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Debentures
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator or other similar
official in any such judicial proceeding is hereby authorized by each Holder to
make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Debentures
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 505. Trustee May Enforce Claims Without Possession of Debentures.
All rights of action and claims under this Indenture or the Debentures may
be prosecuted and enforced by the Trustee without the possession of any of the
Debentures or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Debentures in respect of which such judgment has been
recovered.
Section 506. Application of Money Collected.
Subject to Article Fourteen, any money collected by the Trustee pursuant
to this Article shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
<PAGE> 47
39
of principal (or premium, if any) or interest, upon presentation of the
Debentures and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee under Section
607;
Second: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Debentures in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Debentures for principal (and premium, if
any) and interest, respectively; and
Third: The balance, if any, to the Company.
Section 507. Limitation on Suits.
No Holder of any Debenture shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given notice to the Trustee of a
continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Debentures shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
aggregate principal amount of the Outstanding Debentures;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
<PAGE> 48
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or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
Section 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest and to Convert.
Notwithstanding any other provision in this Indenture, the Holder of any
Debenture shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 309)
interest on such Debenture on the respective Stated Maturities expressed in such
Debenture (or, in the case of redemption, on the Redemption Date) and to convert
such Debenture in accordance with Article Thirteen and to institute suit for the
enforcement of any such payment and right to convert, and such rights shall not
be impaired without the consent of such Holder.
Section 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
such Holder, then and in every such case, subject to any determination in such
proceeding, the Company, the Trustee and the Holders shall be restored severally
and respectively to their former positions hereunder and thereafter all rights
and remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
Section 510. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Debenture to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time
<PAGE> 49
41
to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
Section 512. Control by Holders.
The Holders of a majority in aggregate principal amount of the Outstanding
Debentures shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 513. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Debentures may on behalf of the Holders of all the Debentures
waive any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Debenture, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Debenture affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
Section 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Debenture by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suite of an undertaking to pay the costs of such suit, and that such court may
in its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to merits and good
faith of the claims or defenses made by such party litigant; but the provisions
of this Section shall not apply to any suit instituted by the Trustee, to any
suit
<PAGE> 50
42
instituted by any Holder, or group of Holders, holding in the aggregate more
than 10% in principal amount of the Outstanding Debentures, or to any suite
instituted by any Holder for the enforcement of the payment of the principal of
(or premium, if any) or interest on any Debenture on or after the respective
Stated Maturities expressed in such Debenture (or, in the case of redemption,
on or after the Redemption Date) or for the enforcement of the right to convert
any Debenture in accordance with Article Thirteen.
Section 515. Waiver of Stay or Extension Laws.
Each of the Company and the Guarantor covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and each of the
Company and the Guarantor (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE SIX
The Trustee
Section 601. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture; but
in the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture.
<PAGE> 51
43
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct, except that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of a majority in aggregate principal amount of the
Outstanding Debentures relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture; and
(4) the Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
Section 602. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder, the Trustee
shall transmit by mail to all Holders, as their names and addresses appear in
the Debenture Register, notice of such default hereunder known to the Trustee,
unless such default shall have been cured or waived; provided, however, that
except in the case of a default in the payment of the principal of (or premium,
if any) or interest on any Debenture or in the payment of any
<PAGE> 52
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sinking fund installments, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders; and provided, further, that in the case of any default of the character
specified in Section 501(4), no such notice to Holders shall be given until at
least 30 days after the occurrence thereof. For the purpose of this Section, the
term "default" means any event which is, or after notice or lapse of time or
both would become, an Event of Default.
Section 603. Certain Rights of Trustee.
Except as otherwise provided in Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company or the Guarantor
mentioned herein shall be sufficiently evidenced by a Company Request or
Company Order and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any actin hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel, and the written advice of
such counsel or any Opinion of Counsel shall be fully and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction;
<PAGE> 53
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(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company and the Guarantor, personally or
by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
Section 604. Not Responsible for Recitals or Issuance of Debentures.
The recitals contained herein and in the Debentures, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company
or the Guarantor, as the case may be, and the Trustee assumes no responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Debentures. The Trustee shall not be
accountable for the use or application by the Company of Debentures or the
proceeds thereof.
Section 605. May Hold Debentures.
The Trustee, any Authenticating Agent, any Paying Agent, any Debenture
Registrar or any other agent of the Company or the Guarantor, in its individual
or any other capacity, may become the owner or pledgee of Debentures and,
subject to Sections 608 and 613, may otherwise deal with the Company or the
Guarantor with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Debenture Registrar or such other agent.
Section 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company or the Guarantor.
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SECTION 607. Compensation and Reimbursement.
The Company and the Guarantor agree
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration
of this trust, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder.
As security for the performance of the obligations of the Company and the
Guarantor under this Section the Trustee shall have a lien prior to the
Debentures upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of (and premium, if any)
or interest on Debentures.
SECTION 608. Disqualification; Conflicting Interests.
(a) If the Trustee has or shall acquire any conflicting interest, as
defined in this Section, it shall, within 90 days after ascertaining that it has
such conflicting interest, either eliminate such conflicting interest or resign
in the manner and with the effect hereinafter specified in this Article.
(b) In the event that the Trustee shall fail to comply with the provisions
of Subsection (a) of this Section, the Trustee shall, within 10 days after the
expiration of such 90-day period, transmit by mail to all Holders, as their
names and addresses appear in the Debenture Register, notice of such failure.
(c) For the purposes of this Section, the Trustee shall be deemed to have a
conflicting interest if
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(1) the Trustee is trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the Company are outstanding, unless such other indenture is
a collateral trust indenture under which the only collateral consists of
Debentures issued under this Indenture, provided that there shall be
excluded from the operation of this paragraph any indenture or indentures
under which other securities, or certificates of interest or participation
in other securities, of the Company are outstanding, if
(i) this Indenture and such other indenture or indentures are
wholly unsecured and such other indenture or indentures are hereafter
qualified under the Trust Indenture Act, unless the Commission shall
have found and declared by order pursuant to Section 305(b) or Section
307(c) of the Trust Indenture Act that differences exist between the
provisions of this Indenture and the provisions of such other
indenture or indentures which are so likely to involve a material
conflict of interest as to make it necessary in the public interest or
for the protection of investors to disqualify the Trustee from acting
as such under this Indenture and such other indenture or indentures,
or
(ii) the Company shall have sustained the burden of proving, on
application to the Commission and after opportunity for hearing
thereon, that trusteeship under this Indenture and such other
indenture or indentures is not so likely to involve a material
conflict of interest as to make it necessary in the public interest or
for the protection of investors to disqualify the Trustee from acting
as such under one of such indentures;
(2) the Trustee or any of its directors or executive officers is an
obligor upon the Debentures or an underwriter for the Company;
(3) the Trustee directly or indirectly controls or is directly or
indirectly controlled by or is under direct to indirect common control with
the Company or an underwriter for the Company;
(4) the Trustee or any of its directors or executive officers is a
director, officer, partner, employee, appointee or representative of the
Company, or of an underwriter (other than the Trustee itself) for the
Company who is currently engaged in the business of underwriting, except
that (i) one individual may be a director or an executive officer, or both,
of the Trustee and a director or an executive officer, or both, of the
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Company but may not be at the same time an executive officer of both the
Trustee and the Company; (ii) if and so long as the number of directors of
the Trustee in office is more than nine, one additional individual may be a
director or an executive officer, or both, of the Trustee and a director of
the Company; and (iii) the Trustee may be designated by the Company or by
any underwriter for the Company to act in the capacity of transfer agent,
registrar, custodian, paying agent, fiscal agent, escrow agent or
depositary, or in any other similar capacity, or, subject to the provisions
of paragraph (1) of the Subsection, to act as trustee, whether under an
indenture or otherwise;
(5) 10% or more of the voting securities of the Trustee is
beneficially owned either by the Company or by any director, partner or
executive officer thereof, or 20% or more of such voting securities is
beneficially owned, collectively, by any two or more of such persons; or
10% or more of the voting securities of the Trustee is beneficially owned
either by an underwriter for the Company or by any director, partner or
executive officer thereof, or is beneficially owned, collectively, by any
two or more such persons;
(6) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), (i) 5% or more of the voting securities, or 10% or
more of any other class of security, of the Company not including the
Debentures issued under this Indenture and securities issued under any
other indenture under which the Trustee is also trustee, or (ii) 10% or
more of any class of security of an underwriter for the Company;
(7) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), 5% or more of the voting securities of any person who,
to the knowledge of the Trustee, owns 10% or more of the voting securities
of, or controls directly or indirectly or is under direct or indirect
common control with, the Company;
(8) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), 10% or more of any class of security of any person
who, to the knowledge of the Trustee, owns 50% or more of the voting
securities of the Company; or
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(9) the Trustee owns, on May 15 in any calendar year, in the capacity
of executor, administrator, testamentary or inter vivos trustee, guardian,
committee or conservator, or in any other similar capacity, an aggregate of
25% or more of the voting securities, or of any class of security, of any
person, the beneficial ownership of a specified percentage of which would
have constituted a conflicting interest under paragraph (6), (7) or (8) of
this Subsection. As to any such securities of which the Trustee acquired
ownership through becoming executor, administrator or testamentary trustee
of an estate which included them, the provisions of the preceding sentence
shall not apply, for a period of two years from the date of such
acquisition, to the extent that such securities included in such estate do
not exceed 25% of such voting securities or 25% of any such class of
security. Promptly after May 15 in each calendar year, the Trustee shall
make a check of its holdings of such securities in any of the
above-mentioned capacities as of such May 15. If the company fails to make
payment in full of the principal of (or premium, if any) or interest on any
of the Debentures when and as the same becomes due and payable, and such
failure continues for 30 days thereafter, the Trustee shall make a prompt
check of its holdings of such securities in any of the above-mentioned
capacities as of the date of the expiration of such 30-day period, and
after such date, notwithstanding the foregoing provisions of this
paragraph, all such securities so held by the Trustee, with sole or joint
control over such securities vested in it, shall, but only so long as such
failure shall continue, be considered as though beneficially owned by the
Trustee for the purpose of paragraphs (6), (7) and (8) of this Subsection.
The specification of percentages in paragraphs (5) to (9), inclusive, of
this Subsection shall not be construed as indicating that the ownership of such
percentages of the securities of a person is or is not necessary or sufficient
to constitute direct or indirect control for the purposes of paragraph (3) or
(7) of this Subsection.
For the purposes of paragraphs (6), (7), (8) and (9) of this Subsection
only, (i) the terms "security" and "securities" shall include only such
securities as are generally known as corporate securities, but shall not include
any note or other evidence of indebtedness issued to evidence an obligation to
repay moneys lent to a person by one or more banks, trust companies or banking
firms, or any certificate of interest or participation in any such note or
evidence of indebtedness; (ii) an obligation shall be deemed to be "in
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default" when a default in payment of principal shall have continued for 30
days or more and shall not have been cured; and (iii) the Trustee shall not be
deemed to be the owner or holder of (A) any security which it holds as
collateral security, as trustee or otherwise, for an obligation which is not in
default as defined in clause (ii) above, or (B) any security which it holds as
collateral security under this Indenture, irrespective of any default hereunder,
or (C) any security which it holds as agent for collection, or as custodian,
escrow agent or depositary, or in any similar representative capacity.
(d) For the purposes of this Section:
(1) The term "underwriter", when used with reference to the Company,
means every person who, within three years prior to the time as of which
the determination is made, has purchased from the Company with a view to,
or has offered or sold for the Company in connection with, the distribution
of any security of the Company outstanding at such time, or has
participated or has had a direct or indirect participation in any such
undertaking, or has participated or has had a participation in the direct
or indirect underwriting of any such undertaking, but such term shall not
include a person whose interest was limited to a commission from an
underwriter or dealer not in excess of the usual and customary
distributors' or sellers' commission.
(2) The term "director" means any director of a corporation or any
individual performing similar functions with respect to any organization,
whether incorporated or unincorporated.
(3) The term "person" means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust, an
unincorporated organization or a government or political subdivision
thereof. As used in this paragraph, the term "trust" shall include only a
trust where the interest or interests of the beneficiary or beneficiaries
are evidenced by a security.
(4) The term "voting security" means any security presently entitling
the owner or holder thereof to vote in the direction or management of the
affairs of a person, or any security issued under or pursuant to any trust,
agreement or arrangement whereby a trustee or trustees or agent or agents
for the owner or holder of such security are presently entitled to vote in
the direction or management of the affairs of a person.
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(5) The term "Company" means any obligor upon the Debentures
including, without limitation, the Guarantor.
(6) The term "executive officer" means the president, every vice
president, every trust officer, the cashier, the secretary and the
treasurer of a corporation, and any individual customarily performing
similar functions with respect to any organization whether incorporated or
unincorporated, but shall not include the chairman of the board of
directors.
(e) The percentages of voting securities and other securities specified in
this Section shall be calculated in accordance with the following provisions:
(1) A specified percentage of the voting securities of the Trustee,
the Company or any other person referred to in this Section (each of whom
is referred to as a "person" in this paragraph) means such amount of the
outstanding voting securities of such person as entitles the holder or
holders thereof to cast such specified percentage of the aggregate votes
which the holders of all the outstanding voting securities of such person
are entitled to cast in the direction or management of the affairs of such
person.
(2) A specified percentage of a class of securities of a person means
such percentage of the aggregate amount of securities of the class
outstanding.
(3) The term "amount", when used in regard to securities, means the
principal amount if relating to evidences of indebtedness, the number of
shares if relating to capital shares and the number of units if relating to
any other kind of security.
(4) The term "outstanding" means issued and not held by or for the
account of the issuer. The following securities shall not be deemed
outstanding within the meaning of this definition:
(i) securities of an issuer held in a sinking fund relating to
securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking fund relating to
another class of securities of the issuer, if the obligation evidenced
by such other class of securities is not in default as to principal or
interest or otherwise;
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(iii) securities pledged by the issuer thereof as security for an
obligation of the issuer not in default as to principal or interest or
otherwise; and
(iv) securities held in escrow if placed in escrow by the issuer
thereof;
provided, however, that any voting securities of an issuer shall be deemed
outstanding if any person other than the issuer is entitled to exercise the
voting rights thereof.
(5) A security shall be deemed to be of the same class as another
security if both securities confer upon the holder or holders thereof
substantially the same rights and privileges; provided however, that, in
the case of secured evidences of indebtedness, all of which are issued
under a single indenture, differences in the interest rates or maturity
dates of various series thereof shall not be deemed sufficient to
constitute such series different classes and provided, further, that, in
the case of unsecured evidences of indebtedness, differences in the
interest rates or maturity dates thereof shall not be deemed sufficient to
constitute them securities of different classes, whether or not they are
issued under a single indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000, subject to supervision or examination by Federal or
State authority and having its Corporate Trust Office in, or maintaining an
office or agency for the payment of principal of and interest and premium, if
any, on the Debentures in, the Borough of Manhattan, The City of New York. If
such corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of said supervising or examining authority, then for
the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
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SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company and the Guarantor. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in aggregate principal amount of the Outstanding Debentures, delivered
to the Trustee and to the Company and the Guarantor.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608(a) after written
request therefor by the Company, the Guarantor or by any Holder who has
been a bona fide Holder of a Debenture for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Company, the Guarantor
or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (i) the Company or the Guarantor by a Board Resolution
may remove the Trustee, or (ii) subject to Section 514, any Holder who has been
a bona fide Holder of a Debenture for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company
and the Guarantor, by Board Resolutions, shall promptly appoint a successor
Trustee. If, within one year after such resignation, removal or incapability, or
the occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in aggregate principal amount
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of the Outstanding Debentures delivered to the Company and the Guarantor and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee and supersede the
successor Trustee appointed by the Company and the Guarantor. If no successor
Trustee shall have been so appointed by the Company and the Guarantor, or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Debenture for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company and the Guarantor shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee by
mailing written notice of such event by first-class mail, postage prepaid, to
all Holders as their names and addresses appear in the Debenture Register. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and the Guarantor and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on request of
the Company, the Guarantor or the successor Trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
retiring Trustee and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder, subject
nevertheless to its lien, if any, provided for in Section 607. Upon request of
any such successor Trustee, the Company and the Guarantor shall execute any and
all instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Debentures shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Debentures so authenticated with the same effect
as if such successor Trustee had itself authenticated such Debentures.
SECTION 613. Preferential Collection of Claims Against Company.
(a) Subject to Subsection (b) of this Section, if the Trustee shall be or
shall become a creditor, directly or indirectly, secured or unsecured, of the
Company within four months prior to a default, as defined in Subsection (c) of
this Section, or subsequent to such a default, then, unless and until such
default shall be cured, the Trustee shall set apart and hold in a special
account for the benefit of the Trustee individually, the Holders of the
Debentures and the holders of other indenture securities, as defined in
Subsection (c) of this Section:
(1) an amount equal to any and all reductions in the amount due and
owing upon any claim as such creditor in respect of principal or interest,
effected after the beginning of such four months' period and valid as
against the Company and its other creditors, except any such reduction
resulting from the receipt or deposition of any property described in
paragraph (2) of this Subsection, or from the exercise of any right of
set-off which the Trustee could have exercised if a petition in bankruptcy
had been filed by or against the Company upon the date of such default; and
(2) all property received by the Trustee in respect of any claims as
such creditor, either as security therefor, or in satisfaction or
composition thereof, or otherwise, after the beginning of such four months'
period, or an amount equal to the proceeds of any such property, if
<PAGE> 64
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disposed of, subject, however, to the rights, if any, of the Company and
its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee:
(A) to retain for its own account (i) payments made on account of any
such claim by any Person (other than the Company) who is liable thereon,
and (ii) the proceeds of the bona fide sale of any such claim by the
Trustee to a third Person, and (iii) distributions made in cash, securities
or other property in respect of claims filed against the Company in
bankruptcy or receivership or in proceedings for reorganization pursuant to
the Federal Bankruptcy Code or applicable State law;
(B) to realize, for its own account, upon any property held by it as
security for any such claim, if such property was so held prior to the
beginning of such four months' period;
(C) to realize, for its own account, but only to the extent of the claim
hereinafter mentioned, upon any property held by it as security for any
such claim, if such claim was created after the beginning of such four
months' period and such property was received as security therefor
simultaneously with the creation thereof, and if the Trustee shall sustain
the burden of proving that at the time such property was so received the
Trustee had no reasonable cause to believe that a default, as defined in
Subsection (c) of this Section, would occur within four months; or
(D) to receive payment on any claim referred to in paragraph (B) or (C),
against the release of any property held as security for such claim as
provided in paragraph (B) or (C), as the case may be, to the extent of the
fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted after
the beginning of such four months' period for property held as security at the
time of such substitution shall, to the extent of the fair value of the property
released, have the same status as the property released, and, to the extent that
any claim referred to in any of such paragraphs is created in renewal of or in
substitution for or for the purpose of repaying or refunding any pre-existing
claim of the Trustee as such creditor, such claim shall have the same status as
such pre-existing claim.
If the Trustee shall be required to account, the funds and property held in
such special account and the proceeds thereof shall be apportioned among the
Trustee, the Holders and the holders of other indenture securities in such
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manner that the Trustee, the Holders and the holders of other indenture
securities realize, as a result of payments from such special account and
payments of dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to the Federal
Bankruptcy Code or applicable State law, the same percentage of their respective
claims, figured before crediting to the claim of the Trustee anything on account
of the receipt by it from the Company of the funds and property in such special
account and before crediting to the respective claims of the Trustee and the
Holders and the holders of other indenture securities dividends on claims filed
against the Company in bankruptcy or receivership or in proceedings for
reorganization pursuant to the Federal Bankruptcy Code or applicable State law,
but after crediting thereon receipts on account of the indebtedness represented
by their respective claims from all sources other than from such dividends and
from the funds and property so held in such special account. As used in this
paragraph, with respect to any claim, the term "dividends" shall include any
distribution with respect to such claim, in bankruptcy or receivership or
proceedings for reorganization pursuant to the Federal Bankruptcy Code or
applicable State law, whether such distribution is made in cash, securities or
other property, but shall not include any such distribution with respect to the
secured portion, if any, of such claim. The court in which such bankruptcy,
receivership or proceedings for reorganization is pending shall have
jurisdiction (i) to apportion among the Trustee, the Holders and the holders of
other indenture securities, in accordance with the provisions of this paragraph,
the funds and property held in such special account and proceeds thereof, or
(ii) in lieu of such apportionment, in whole or in part, to give to the
provisions of this paragraph due consideration in determining the fairness of
the distributions to be made to the Trustee and the Holders and the holders of
other indenture securities with respect to their respective claims, in which
event it shall not be necessary to liquidate or to appraise the value of any
securities or other property held in such special account or as security for any
such claim, or to make a specific allocation of such distributions as between
the secured and unsecured portions of such claims, or otherwise to apply the
provisions of this paragraph as a mathematical formula.
Any Trustee which has resigned or been removed after the beginning of such
four months' period shall be subject to the provisions of this Subsection as
though such resignation or removal had not occurred. If any Trustee has resigned
or been removed prior to the beginning of such four months' period
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it shall be subject to the provisions of this Subsection if and only if the
following conditions exist:
(i) the receipt of property or reduction of claim, which would have
given rise to the obligation to account, if such Trustee had continued as
Trustee, occurred after the beginning of such four months' period; and
(ii) such receipt of property or reduction of claim occurred within
four months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection (a) of this
Section a creditor relationship arising from:
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year or
more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction or by this Indenture, for the purpose of preserving
any property which shall at any time be subject to the lien of this
Indenture or of discharging tax liens or other prior liens or encumbrances
thereon, if notice of such advances and of the circumstances surrounding
the making thereof is given to the Holders at the time and in the manner
provided in this Indenture;
(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depositary, or other similar
capacity;
(4) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction, as defined in Subsection (c) of this
Section;
(5) the ownership of stock or of other securities of a corporation
organized under the provisions of Section 25(a) of the Federal Reserve Act,
as amended, which is directly or indirectly a creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptances or obligations which fall within the
classification of self-liquidating paper, as defined in Subsection (c) of
this Section.
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(c) For the purposes of this Section only:
(1) the term "default" means any failure to make payment in full of
the principal of or interest on any of the Debentures or upon the other
indenture securities when and as such principal or interest becomes due and
payable;
(2) the term "other indenture securities" means securities upon which
the Company is an obligor outstanding under any other indenture (i) under
which the Trustee is also trustee, (ii) which contains provisions
substantially similar to the provisions of this Section, and (iii) under
which a default exists at the time of the apportionment of the funds and
property held in such special account;
(3) the term "cash transaction" means any transaction in which full
payment for goods or securities sold is made within seven days after
delivery of the goods or securities in currency or in checks or other
orders drawn upon banks or bankers and payable upon demand;
(4) the term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security, provided the security is
received by the Trustee simultaneously with the creation of the creditor
relationship with the Company arising from the making, drawing, negotiating
or incurring of the draft, bill of exchange, acceptance or obligation;
(5) the term "Company" means any obligor upon the Debentures
including, without limitation, the Guarantor; and
(6) the term "Federal Bankruptcy Code" means the Bankruptcy Code or
Title 11 of the United States Code.
SECTION 614. Appointment of Authenticating Agent.
At any time when any of the Debentures remain Outstanding the Trustee may
appoint an Authenticating Agent or Agents which shall be authorized to act on
behalf of the Trustee to authenticate Debentures issued upon exchange,
registration of transfer or partial redemption thereof or
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pursuant to Section 306, and Debentures so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Debentures by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State
thereof or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by Federal or State
authority. If such Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined
capital and surplus of such Authenticating Agent shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, such
Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall
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mail written notice of such appointment by first-class mail, postage prepaid,
to all Holders as their names and addresses appear in the Debenture Register.
Any successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent
herein. No successor Authenticating Agent shall be appointed unless eligible
under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
If an appointment is made pursuant to this Section, the Debentures may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
This is one of the Debentures described in the within-mentioned Indenture.
_________________________
As Trustee
By_______________________
As Authenticating Agent
By_______________________
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names an Addresses of Holders.
The Company and the Guarantor will furnish or cause to be furnished to the
Trustee
(a) semi-annually, not more than 5 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
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(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company or the Guarantor of any such
request, a list of similar form and content as of a date not more than 15
days prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Debenture Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Debenture
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) If three or more Holders (herein referred to as "applicants") apply in
writing to the Trustee, and furnish to the Trustee reasonable proof that each
such applicant has owned a Debenture for a period of at least six months
preceding the date of such application, and such application states that the
applicants desire to communicate with other Holders with respect to their
rights under this Indenture or under the Debentures and is accompanied by a
copy of the form of proxy or other communication which such applicants propose
to transmit, then the Trustee shall, within five business days after the
receipt of such application, at its election, either
(i) afford such applicants access to the information preserved at the
time by the Trustee in accordance with Section 702(a), or
(ii) inform such applicants as to the approximate number of Holders
whose names and addresses appear in the information preserved at the time
by the Trustee in accordance with Section 702(a), and as to the approximate
cost of mailing to such Holders the form of proxy or other communication,
if any, specified in such application.
If the trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appear in the information preserved
at the time by the Trustee in accordance with Section 702(a) a copy of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment, of the
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reasonable expenses of mailing, unless within five days after such tender the
Trustee shall mail to such applicants, and file with the Commission together
with a copy of the material to be mailed, a written statement to the effect
that, in the opinion of the Trustee, such mailing would be contrary to the best
interests of the Holders or would be in violation of applicable law. Such
written statement shall specify the basis of such opinion. If the Commission,
after opportunity for a hearing upon the objections specified in the written
statement so filed, shall enter an order refusing to sustain any of such
objections or if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity for
hearing, that all the objections so sustained have been met and shall enter an
order so declaring, the Trustee shall mail copies of such material to all such
Holders with reasonable promptness after the entry of such order and the
renewal of such tender; otherwise the Trustee shall be relieved of any
obligation or duty to such applicants respecting their application.
(c) Every Holder of Debentures, by receiving and holding the same, agrees
with the Company, the Guarantor and the Trustee that neither the Company nor
the Guarantor nor the Trustee nor any agent of any of them shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the Holders in accordance with Section 702(b), regardless of
the source from which such information was derived, and that the Trustee shall
not be held accountable by reason of mailing any material pursuant to a request
made under Section 702(b).
SECTION 703. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with the year
1987, the Trustee shall transmit by mail to all Holders, as their names and
addresses appear in the Debenture Register, a brief report dated as of such May
15 with respect to:
(1) its eligibility under Section 609 and its qualifications under
Section 608, or in lieu thereof, if to the best of its knowledge it has
continued to be eligible and qualified under said Sections, a written
statement to such effect;
(2) the character and amount of any advances made by the Trustee (as
such) which remain unpaid on the date of such report, and for the
reimbursement of which it claims or may claim a lien or charge, prior to
that of the Debentures, on any property or funds held or collected by it as
Trustee, except that the Trustee shall not be required (but may elect)
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to report such advances if such advances so remaining unpaid aggregate not
more than 1/2 of 1% of the principal amount of the Debentures Outstanding
on the date of such report;
(3) the amount, interest rate and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the
Debentures, including, without limitation, the Guarantor) to the Trustee in
its individual capacity, on the date of such report, with a brief
description of any property held as collateral security therefor, except an
indebtedness based upon a creditor relationship arising in any manner
described in Section 613(b)(2), (3), (4) or (6);
(4) the property and funds, if any, physically in the possession of
the Trustee as such on the date of such report;
(5) any additional issue of Debentures which the Trustee has not
previously reported; and
(6) any action taken by the Trustee in the performance of its duties
hereunder which it has not previously reported and which in its opinion
materially affects the Debentures, except action in respect of a default,
notice of which has been or is to be withheld by the Trustee in accordance
with Section 602.
(b) The Trustee shall transmit by mail to all Holders, as their names and
addresses appear in the Debenture Register, a brief report with respect to the
character and amount of any advances made by the Trustee (as such) since the
date of the last report transmitted pursuant to Subsection (a) of this Section
(or if no such report has yet been so transmitted, since the date of execution
of this instrument) for the reimbursement of which it claims or may claim a lien
or charge, prior to that of the Debentures, on property or funds held or
collected by it as Trustee and which it has not previously reported pursuant to
this Subsection, except that the Trustee shall not be required (but may elect)
to report such advances if such advances remaining unpaid at any time aggregate
10% or less of the principal amount of the Debentures Outstanding at such time,
such report to be transmitted within 90 days after such time.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Debentures are listed, with the Commission and with the Company and the
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Guarantor. The Company will notify the Trustee when the Debentures are listed
on any stock exchange.
SECTION 704. Reports by Company and the Guarantor.
The Company and the Guarantor shall:
(1) file with the Trustee, within 15 days after the Company or the
Guarantor is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company or the
Guarantor may be required to file with the Commission pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the
Company or the Guarantor is not required to file information, documents or
reports pursuant to either of said Sections, then it shall file with the
Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the supplementary
and periodic information, documents and reports which may be required
pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of
a security listed and registered on a national securities exchange as may
be prescribed from time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company and the Guarantor with the conditions and covenants of this
Indenture as may be required from time to time by such rules and
regulations; and
(3) transmit by mail to all Holders, as their names and addresses
appear in the Debenture Register, within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company and the Guarantor pursuant to
paragraphs (1) and (2) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission.
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company or Guarantor May Consolidate, Etc., Only on Certain Terms.
Neither the Company nor the Guarantor shall consolidate with or merge into
any other corporation or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and neither the Company nor the
Guarantor shall permit any Person to consolidate with or merge into the Company
or the Guarantor, as the case may be, or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, or the
Guarantor, as the case may be, unless;
(1) in case the Company or the Guarantor shall consolidate with or
merge into another corporation or convey, transfer or lease its properties
and assets substantially as an entirety to any Person, the corporation
formed by such consolidation or into which the Company or the Guarantor is
merged or the Person which acquires by conveyance or transfer, or which
leases, the properties and assets of the Company or the Guarantor
substantially as an entirety (i) shall be a corporation organized and
existing under the laws of the United States of America, any State thereof
or the District of Columbia, (ii) shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, in the case of the Company, the due and
punctual payment of the principal of (and premium, if any) and interest on
all the Debentures and the performance of every covenant of this Indenture
on the part of the Company to be performed or observed, and, in the case of
the Guarantor, the due and punctual performance of the Guarantees and of
every covenant on the part of the Guarantor to be performed or observed and
(iii) in the case of the Company, shall have provided for conversion rights
in accordance with Section 1310;
(2) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company, the Guarantor
or a Subsidiary as a result of such transaction as having been incurred by
the Company, the Guarantor or such Subsidiary at the time of such
transaction, no Event of Default, and no event which, after notice or lapse
of time or both, would become an Event of Default, shall have occurred and
be continuing; and
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(3) the Company or the Guarantor, as the case may be, has delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, conveyance, transfer or lease and,
if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with this Article and that
all conditions precedent herein provided for relating to such transaction
have been met.
SECTION 802. Successor Corporation Substituted.
Upon any consolidation or merger by the Company or the Guarantor with or
into any other corporation or any conveyance, transfer or lease of the
properties and assets of the Company or the Guarantor substantially as an
entirety to any Person in accordance with Section 801, the successor corporation
formed by such consolidation or into which the Company or the Guarantor is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
or the Guarantor, as the case may be, under this Indenture with the same effect
as if such successor corporation had been named as the Company or the Guarantor,
as the case may be, herein, and thereafter, except in the case of a lease to
another Person, the predecessor corporation shall be relieved of all obligations
and covenants under this Indenture and the Debentures.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, each of the Company and the Guarantor,
when authorized by a Board Resolution, and the Trustee, at any time and from
time to time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the Company
or the Guarantor and the assumption by any such successor of the covenants
of the Company or the Guarantor herein and in the Debentures; or
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(2) to add to the covenants of the Company or the guarantor for the
benefit of the Holders, or to surrender any right or power herein conferred
upon the Company or the Guarantor; or
(3) to make provision with respect to the conversion rights of Holders
pursuant to the requirements of Section 1310; or
(4) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provision with respect to matters or questions arising under
this Indenture which shall not be inconsistent with the provisions of this
Indenture, provided such action shall not adversely affect the interests of
the Holders.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than 66 2/3% in aggregate
principal amount of the Outstanding Debentures, by Act of said Holders
delivered to the Company, the Guarantor and the Trustee, the Company and the
Guarantor, when authorized by a Board Resolution, and the Trustee may enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions or changing in any manner or eliminating any of the provisions
of this Indenture or of modifying in any manner the rights of the Holders under
this Indenture; provided, however, that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Debenture affected
thereby,
(1) change the Stated Maturity of the principal of (and premium, if
any), or any installment of interest on, any Debenture, or reduce the
principal amount thereof or the rate of interest thereon or any premium
payable upon the redemption thereof or change the place of payment where,
or the coin or currency in which, the principal of any Debenture or any
premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or adversely affect the right to convert any Debenture as
provided in Article Thirteen or modify the provisions of this Indenture
with respect to the subordination of the Debentures in a manner adverse to
the Holders, or
(2) change in any manner adverse to the interests of the Holders, the
terms and conditions of the obligations of the Company and the
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Guarantor in respect of the due and punctual payment of the principal of
(and premium, if any), or any installment of interest on, the Debenture
provided for in this Indenture.
(3) reduce the percentage in principal amount of the Outstanding
Debentures, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture,
or
(4) modify any of the provisions of this Section or Section 513,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Debenture affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Debentures theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity With Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
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SECTION 906. Reference in Debentures to Supplemental Indentures.
Debentures authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Debentures so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Debentures.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and premium, if
any) and interest on the Debentures in accordance with the terms of the
Debentures and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company and the Guarantor will maintain in the Borough of Manhattan,
The City of New York, an office or agency where Debentures may be presented or
surrendered for payment, where Debentures may be surrendered for registration
of transfer or exchange, where Debentures may be surrendered for conversion and
where notices and demands to or upon the Company or the Guarantor in respect of
the Debentures and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company or the Guarantor shall
fail to maintain any such required office or agency or shall fail to furnish
the Trustee with the address thereof, such presentations, surrenders, notices
and demands may be made or served at the Corporate Trust Office of the Trustee,
and the Company and the Guarantor hereby appoint the Trustee as its agent to
receive all such presentations, surrenders, notices and demands.
The Company and the Guarantor may also from time to time designate one or
more other offices or agencies (in or outside of the above location) where the
Debentures may be presented or surrendered for any or all such purposes and may
from time to time rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the
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Company or the Guarantor of its obligation to maintain an office or agency in
the Borough of Manhattan, The City of New York for such purposes. The Company
or the Guarantor, as the case may be, will give prompt written notice to the
Trustee of any such designation or rescission and of any change in the location
of any such other office or agency.
SECTION 1003. Money for Debenture Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on
or before each due date of the principal of (and premium, if any) or interest
on any of the Debentures, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to each due date of the principal of (and premium, if any) or interest on any
Debentures, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due, such sum to be held in trust
for the benefit of the Persons entitled to such principal, premium or interest,
and (unless such Paying Agent is the Trustee) the Company will promptly notify
the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Debentures in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Debentures, including, without limitation, the
Guarantor) in the making of any payment of principal (and premium, if any)
or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
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The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if any)
or interest on any Debenture and remaining unclaimed for three years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Debenture shall
thereafter, as an unsecured general creditor, look only to the Company and the
Guarantor for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, each of the Company and the Guarantor will do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence, rights (charter and statutory) and franchises;
provided, however, that the Company or the Guarantor, as the case may be, shall
not be required to preserve any such right or franchise if its Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company or the Guarantor, as the case may
be, and that the loss thereof is not disadvantageous in any material respect to
the Holders.
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SECTION 1005. Statement by Officers as to Default.
The Company and the Guarantor will deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company ending after the date hereof,
an Officers' Certificate, stating whether or not to the best knowledge of the
signers thereof the Company or the Guarantor is in default in the performance
and observance of any of the terms, provisions and conditions of Sections 1001
to 1004, inclusive, and if the Company or the Guarantor shall be in default,
specifying all such defaults and the nature and status thereof of which they
may have knowledge.
ARTICLE ELEVEN
REDEMPTION OF DEBENTURES
SECTION 1101. Right of Redemption.
The Debentures may be redeemed otherwise than through operation of the
sinking fund provided for in Article Twelve at the election of the Company, as a
whole or from time to time in part, at any time, at the Redemption Prices
specified in the form of Debenture hereinbefore set forth for redemptions
otherwise than through operation of the sinking fund, together with accrued
interest to the Redemption Date. Notwithstanding the foregoing, the Company may
not, prior to March 1, 1989, redeem any Debentures unless the Closing Price of
the Common Stock on twenty of the thirty consecutive days on which there was
such a price immediately preceding the fifth day prior to the initial
publication of the notice of such redemption is at least 150% of the conversion
price in effect at the close of business on such day.
SECTION 1102. Applicability of Article.
Redemption of Debentures at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Debentures pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company of less than all the Debentures, the Company shall, at
least 60 days prior to the Redemption Date fixed by the Company (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee of
such Redemption Date and of the principal amount of Debentures to be redeemed.
SECTION 1104. Selection by Trustee of Debentures to Be Redeemed.
If less than all the Debentures are to be redeemed, the particular
Debentures to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Debentures not
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previously called for redemption, by such method as the Trustee shall deem fair
and appropriate and which may provide for the selection for redemption of
portions (equal to $1,000 or any integral multiple thereof) of the principal
amount of Debentures of a denomination larger than $1,000.
If any Debenture selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Debenture so selected, the converted portion of such Debenture shall be deemed
(so far as may be) to be the portion selected for redemption. Debentures which
have been converted during a selection of Debentures to be redeemed shall be
treated by the Trustee as Outstanding for the purpose of such selection.
The Trustee shall promptly notify the Company and each Debenture Registrar
in writing of the Debentures selected for redemption and, in the case of any
Debentures selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Debentures shall relate, in the
case of any Debentures redeemed or to be redeemed only in part, to the portion
of the principal amount of such Debenture which has been or is to be redeemed.
Section 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Debentures to be redeemed, at his address appearing in the
Debenture Register.
All notices of redemption shall state:
(1) the Redemption Date.
(2) the Redemption Price.
(3) if less than all the Outstanding Debentures are to be redeemed,
the identification (and, in the case of partial redemption, the principal
amounts) of the particular Debentures to be redeemed.
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Debenture to be redeemed and that interest
thereon will cease to accrue on and after said date,
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(5) the conversion price, the date on which the right to
convert the principal of the Debentures to be redeemed will terminate
and the place or places where such Debentures may be surrendered for
conversion,
(6) the place or places where such Debentures are to be
surrendered for payment of the Redemption Price, and
(7) that the redemption is for the sinking fund, if such is the
case.
Notice of redemption of Debentures to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Debentures
which are to be redeemed on that date other than any Debentures called for
redemption on that date which have been converted prior to the date of such
deposit.
If any Debenture called for redemption is converted, any money
deposited with the trustee or with any Paying Agent or so segregated and held
in trust for the redemption of such Debenture shall (subject to any right of
the Holder of such Debenture or any Predecessor Debenture to receive interest
as provided in the last paragraph of Section 307) be paid to the Company upon
Company Request or, if then held by the Company, shall be discharged from such
trust.
SECTION 1107. Debentures Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Debentures so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company and the Guarantor shall default in the payment of the Redemption Price
and accrued interest) such Debentures shall cease to bear interest. Upon
surrender of any such Debenture for redemption in accordance with said notice,
such Debenture shall be paid by the Company at the Redemption Price, together
with accrued interest to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Debentures, or
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one or more Predecessor Debentures, registered as such at the close of business
on the relevant Record Dates according to their terms and the provisions of
Section 307.
If any Debenture called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date as the rate borne by the
Debenture.
SECTION 1108. Debentures Redeemed in Part.
Any Debenture which is to be redeemed only in part shall be surrendered
at an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Debenture without service
charge, a new Debenture or Debentures, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Debenture so
surrendered.
ARTICLE TWELVE
SINKING FUND
SECTION 1201. Sinking Fund Payments.
As and for a sinking fund for the retirement of the Debentures, the
Company will, until all Debentures are paid or payment thereof provided for,
deposit in accordance with Section 1106, prior to March 1 in each year,
commencing in 1998 and ending in 2011, an amount in cash sufficient to redeem,
on such March 1, 5% of the maximum aggregate principal amount of Debentures
issued hereunder at the Redemption Price specified in the form of Debenture
hereinbefore set forth for redemption through operation of the sinking fund.
The cash amount of any sinking fund payment is subject to reduction as provided
in Section 1202. Each sinking fund payment shall be applied to the redemption
of Debentures on such March 1 as herein provided.
SECTION 1202. Satisfaction of Sinking Fund Payments with Debentures.
The Company (1) may deliver Outstanding Debentures (other than any
previously called for redemption) and (2) may apply as a credit Debentures
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which have been redeemed at the election of the Company pursuant to Section
1101, in each case in satisfaction of all or any part of any sinking fund
payment required to be made pursuant to Section 1201, provided that such
Debentures have not been previously so credited. Each such Debenture shall be
received and credited for such purpose by the Trustee at the Redemption Price
specified in the form of Debenture hereinbefore set forth for redemption
through operation of the sinking fund and the amount of such sinking fund
payment shall be reduced accordingly.
SECTION 1203. Redemption of Debentures for Sinking Fund.
On or before January 1 in each year commencing with the year 1998 and
ending in 2011, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment
pursuant to Section 1201, the portion thereof, if any, which is to be satisfied
by payment of cash and the portion thereof, if any, which is to be satisfied by
delivering and crediting Debentures pursuant to Section 1202 and will also
deliver to the Trustee any Debentures to be so delivered. If the sinking fund
payment to be made in cash, plus any unused balance of any preceding sinking
fund payments made in cash, shall be $25,000 or less on any March 1, such
aggregate amount may, at the election of the Company, be carried over to and
paid with the next succeeding sinking fund payment. Before February 1 in each
such year the Trustee shall select the Debentures to be redeemed upon the next
ensuing March 1 in the manner specified in Section 1104 and cause notice of the
redemption thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 1105. Such notice having been duly given, the
redemption of such Debentures shall be made upon the terms and in the manner
stated in Sections 1107 and 1108.
ARTICLE THIRTEEN
CONVERSION OF DEBENTURES
SECTION 1301. Conversion Privilege and Conversion Price.
Subject to and upon compliance with the provisions of this Article, at the
option of the Holder thereof, any Debenture or any portion of the principal
amount thereof which is $1,000 or an integral multiple of $1,000 may be
converted at the principal amount thereof, or of such portion thereof, into
fully paid and nonassessable shares (calculated as to each conversion to the
nearest 1/100 of a share) of Common Stock of the Company, at the conversion
price, determined as hereinafter provided, in effect at the time of conversion.
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Such conversion right shall expire at the close of business on March 1, 2012.
In case a Debenture or portion thereof is called for redemption, such
conversion right in respect of the Debenture or portion so called shall expire
at the close of business on the business day prior to the Redemption Date,
unless the Company defaults in making the payment due upon redemption.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "conversion price") shall be initially $40.00 per
share of Common Stock. The conversion price shall be adjusted in certain
instances as provided in paragraphs (1), (2), (3), (4), (7) and (8) of Section
1304.
SECTION 1302. Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of any Debenture
to be converted shall surrender such Debenture, duly endorsed or assigned to
the Company or in blank, at any office or agency of the Company maintained for
that purpose pursuant to Section 1002, accompanied by written notice to the
Company at such office or agency that the Holder elects to convert such
Debenture or, if less than the entire principal amount thereof is to be
converted, the portion thereof to be converted. Debentures surrendered for
conversion during the period from the close of business on any Regular Record
Date to the opening of business on the following Interest Payment Date shall
(except in the case of Debentures or portions thereof which have been called
for redemption on a Redemption Date within such period or on such Interest
Payment Date) be accompanied by payment in New York Clearing House funds or
other funds acceptable to the Company of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of Debentures
being surrendered for conversion. Any Debenture surrendered for conversion
during the period from the close of business on any Regular Record Date for the
payment of interest to the opening of business on the following Interest Payment
Date which has been called for redemption on a date within such period or on
such Interest Payment Date must be accompanied by payment in New York Clearing
House funds or other funds acceptable to the Company of an amount, if any, equal
to the difference between (i) the interest payable to the registered Holder of
such Debenture on such Interest Payment Date in respect of the principal amount
of the Debenture being surrendered for conversion and (ii) the accrued interest
on such principal amount to the date of conversion. Except as provided in the
two preceding sentences and subject to the fourth
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paragraph of Section 309, no payment or adjustment shall be made upon any
conversion on account of any interest accrued on the Debentures surrendered for
conversion or on account of any dividends on the Common Stock issued upon
conversion.
Debentures shall be deemed to have been converted immediately prior to the
close of business on the date of surrender of such Debentures for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Debentures as Holders shall cease, and the person or persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock at such
time. As promptly as practicable on or after the conversion date, the Company
shall issue and shall deliver at such office or agency a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share, as
provided in Section 1303.
In the case of any Debenture which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Debenture
or Debentures of authorized denominations in aggregate principal amount equal
to the unconverted portion of the principal amount of such Debenture.
SECTION 1303. Fractions of Shares.
No fractional shares of Common Stock shall be issued upon conversion of
Debentures. If more than one Debenture shall be surrendered for conversion at
one time by the same Holder, the number of full shares which shall be issuable
upon conversion thereof shall be computed on the basis of the aggregate
principal amount of the Debentures (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any Debenture or Debentures (or
specified portions thereof), the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to the same fraction of the current market
price per share of Common Stock (determined as provided in paragraph (6) of
Section 1304) at the close of business on the day of conversion.
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SECTION 1304. Adjustment of Conversion Price.
(1) In case the Company shall pay or make a dividend or other distribution
on any class of capital stock of the Company in shares of Common Stock, the
conversion price in effect at the opening of business on the day following the
date fixed for the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced by multiplying such conversion
price by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of shares and
the total number of shares constituting such dividend or other distribution,
such reduction to become effective immediately after the opening of business on
the date following the date fixed for such determination.
(2) In case the Company shall issue rights or warrants to all holders of
its shares of Common Stock entitling them to subscribe for or purchase Common
Stock at a price per share less than the current market price per share
(determined as provided in paragraph (6) of this Section) of the Common Stock
on the date fixed for the determination of stockholders entitled to receive
such rights or warrants, the conversion price in effect at the opening of
business on the day following the date fixed for such determination shall be
reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus the number of
shares of Common Stock which the aggregate of the offering price of the total
number of shares of Common Stock so offered for subscription or purchase would
purchase at such current market price and the denominator shall be the number
of shares of Common Stock outstanding at the close of business on the date
fixed for such determination plus the number of shares of Common Stock so
offered for subscription or purchase, such reduction to become effective
immediately after the opening of business on the day following the date fixed
for such determination.
(3) In case the outstanding shares of Common Stock shall be subdivided
into a greater number of shares, the conversion price in effect at the opening
of business on the day following the day upon which such subdivision becomes
effective shall be proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares, the conversion price in effect at the opening of business on the day
following the day upon which such combination becomes effective shall be
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proportionately increased, such reduction or increase, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(4) In case the Company shall, by dividend or otherwise, distribute to all
holders of shares of Common Stock evidences of indebtedness or assets
(including securities, but excluding any rights or warrants referred to in
paragraph (2) of this Section, any dividend or distribution paid in cash out of
the retained earnings of the Company and any dividend or distribution referred
to in paragraph (1) of this Section), the conversion price shall be adjusted so
that the same shall equal the price determined by multiplying the conversion
price in effect immediately prior to the close of business on the date fixed
for the determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the current market price per share
(determined as provided in paragraph (6) of this Section) of the Common Stock
on the date fixed for such determination less the then fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution filed with the Trustee) of the portion of
the assets or evidences of indebtedness so distributed allocable to one share
of Common Stock and the denominator shall be such current market price per
share of the Common Stock, such adjustment to become effective immediately
prior to the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such distribution.
(5) In case the Common Stock shall be changed into the same or a different
number of shares of any class or classes of stock, whether by capital
reorganization, reclassification, or otherwise (other than a subdivision or
combination of shares or a stock dividend described in paragraph (1) or
paragraph (3) of this Section, or a consolidation, merger or sale of assets
described in Section 1310), then and in each such event the Holders of
Debentures shall have the right thereafter to convert such Debentures into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification or other change, by holders of the
number of shares of Common Stock into which such Debentures might have been
converted immediately prior to such reorganization, reclassification or change.
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(6) For the purpose of any computation under paragraphs (2) and (4) of
this Section, the current market price per share of Common Stock on any date
shall be deemed to be the average of the Closing Prices for the 15 consecutive
Business Days selected by the Company commencing not more than 30 and not less
than 20 Business Days before the date in question.
(7) No adjustment in the conversion price shall be required unless such
adjustment (plus any adjustments not previously made by reason of this
paragraph (7)) would require an increase or decrease of at least 1% in such
price; provided, however, that any adjustments which by reason of this paragraph
(7) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this paragraph (7) shall
be made to the nearest cent.
(8) The Company may make such reductions in the conversion price, in
addition to those required by paragraphs (1), (2), (3) and (4) of this Section,
as it considers to be advisable in order to avoid or diminish any income tax to
any holders of shares of Common Stock resulting from any dividend or
distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes
or for any other reasons. The Company shall have the power to resolve any
ambiguity or correct any error in this Section 1304 and its actions in so doing
shall be final and conclusive.
SECTION 1305. Notice of Adjustment of Conversion Price.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in
accordance with Section 1304 and shall prepare an Officers' Certificate
setting forth the adjusted conversion price and showing in reasonable
detail the facts upon which such adjustment is based and the computation
thereof, and such certificate shall forthwith be filed at each office or
agency maintained for the purpose of conversion of Debentures pursuant to
Section 1002; and
(b) a notice stating that the conversion price has been adjusted and
setting forth the adjusted conversion price shall as soon as practicable be
mailed by the Company to the Trustee and to all Holders at their last
addresses as they shall appear in the Debenture Register.
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SECTION 1306. Notice of Certain Corporate Action.
In case:
(a) the Company shall declare a dividend (or any other distribution)
on its shares of Common Stock payable otherwise than in cash out of its
earned surplus; or
(b) the Company shall authorize the granting to the holders of its
shares of Common Stock of rights or warrants entitling them to subscribe
for or purchase any shares of capital stock of any class or of any other
rights; or
(c) of any reclassification of the shares of Common Stock of the
Company (other than a subdivision or combination of its outstanding shares
of Common Stock), or of any consolidation or merger to which the Company is
a party and for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or substantially all of the
assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Debentures pursuant to Section 1002, and shall
cause to be mailed to all Holders at their last addresses as they shall appear
in the Debenture Register, at least 20 days (or 10 days in any case specified in
clause (a) or (b) above) prior to the applicable record date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
Such notice shall also state whether such transaction will result in any
adjustment in the conversion price applicable to the Debentures and, if so,
shall state what the adjusted conversion price will be and when it will become
effective. Neither the failure to give the notice required by this Section, nor
any defect therein, to any particular Holder shall affect the sufficiency of the
notice or the legality or validity of any such dividend, distribution, right,
warrant, reclassification, consolidation, merger, sale,
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transfer, liquidation, dissolution or winding-up, or the vote on any action
authorizing such with respect to the other holders.
SECTION 1307. Company to Reserve Common Stock.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized shares of Common Stock, for the
purpose of effecting the conversion of Debentures, the full number of shares of
Common Stock then issuable upon the conversion of all outstanding Debentures
and shall take all action necessary so that shares of Common Stock so issued
will be validly issued, fully paid and nonassessable.
SECTION 1308. Taxes on Conversions.
The Company will pay any and all stamp or similar taxes that may be payable in
respect of the issue or delivery of shares of Common Stock on conversion of
Debentures pursuant hereto. The Company shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that of the Holder
of the Debenture or Debentures to be converted, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
Company the amount of any such tax, or has established to the satisfaction of
the Company that such tax has been paid.
SECTION 1309. Cancellation of Converted Debentures.
All Debentures delivered for conversion shall be delivered to the Trustee
to be cancelled by or at the direction of the Trustee, which shall dispose of
the same as provided in Section 311.
SECTION 1310. Provisions in Case of Consolidation, Merger or Sale of Assets.
(1) In case of any consolidation of the Company with, or merger of the
Company into, any other corporation, or in case of any merger of another
corporation into the Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company), or in case of any sale or transfer of all or
substantially all of the assets of the Company, the corporation formed by such
consolidation or resulting from such merger or which acquires such assets, as
the case may be, shall execute and deliver to the Trustee a supplemental
indenture providing that the Holder of each Debenture then outstanding shall
have the right thereafter, during the period such Debenture shall be
convertible as specified in Section 1301, to convert such Debenture only into
the kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the
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number of shares of Common Stock of the Company into which such Debenture might
have been converted immediately prior to such consolidation, merger, sale or
transfer. Such supplemental indenture shall provide for adjustments which, for
events subsequent to the effective date of such supplemental indenture, shall
be as nearly equivalent as may be practicable to the adjustments provided for
in this Article. The above provisions of this Section shall similarly apply to
successive consolidations, mergers, sales or transfers.
(2) The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any such supplemental indenture
relating either to the kind or amount of shares of stock or securities or
property receivable by Holders upon the conversion of their Debentures after
any such reclassification, change, consolidation, merger, sale or conveyance or
to any adjustment to be made with respect thereto.
SECTION 1311. Disclaimer by Trustee of Responsibility for Certain
Matters.
The Trustee shall not at any time be under any duty or responsibility to
any Holder of Debentures to determine whether any facts exist which may require
any adjustment of the conversion price, or with respect to the nature or extent
of any such adjustment when made, or with respect to the method employed, or
herein or in any supplemental indenture provided to be employed in making the
same. The Trustee shall not be accountable with respect to the validity, value,
kind or amount of any shares of Common Stock, or any securities or property,
which may at any time be issued or delivered upon the conversion of any
Debenture; and it makes no representation with respect thereto. The Trustee
shall not be responsible for any failure of the Company to issue, transfer or
deliver any shares of Common Stock or stock certificates or other securities or
property upon the surrender of any Debenture for the purpose of conversion or,
subject to Section 601, to comply with any of the covenants of the Company
contained in this Article.
ARTICLE FOURTEEN
SUBORDINATION
SECTION 1401. Agreement of Subordination.
The Company and the Guarantor covenant and agree, and each Holder of
Debentures issued hereunder by his acceptance thereof likewise covenants and
agrees, that all Debentures shall be issued subject to the provisions of this
Article; and each Person holding any Debenture, whether upon original issue or
upon transfer or assignment thereof, accepts and agrees to be bound by such
provisions.
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All Debentures issued hereunder and the Guarantees endorsed thereon shall,
to the extent and in the manner hereinafter set forth, be subordinated and
subject in right of payment to the prior payment in full of all amounts then
due on all Senior Indebtedness.
SECTION 1402. Payments to Holders of Debentures.
No payment shall be made by the Company or the Guarantor on account of
principal of (or premiums, if any) or interest on the Debentures or on account
of the purchase or other acquisition of Debentures, if there shall have
occurred and be continuing a default with respect to any Senior Indebtedness of
the Company or any Senior Indebtedness of the Guarantor, respectively,
permitting the acceleration thereof and such default is the subject of a
judicial proceeding or the Company or the Guarantor, as the case may be,
receives notice of such a default from the holders of such Senior Indebtedness
(provided, however, that in the case of Senior Indebtedness and issued pursuant
to an indenture such notice may be validly given only by the trustee under such
indenture), unless and until such default or event of default shall have been
cured or waived or shall have ceased to exist.
Upon any acceleration of the principal of the Debentures or any payment by
the Company or the Guarantor, or distribution of assets of the Company or the
Guarantor of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding up or liquidation or reorganization
of the Company or the Guarantor, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or
to become due upon all Senior Indebtedness of the Company or the Guarantor, as
the case may be, shall first be paid in full in money or money's worth, or
payment thereof provided for, before any payment is made on account of the
principal of (and premium, if any) or interest on the Debentures; and upon any
such dissolution or winding up or liquidation or reorganization, any payment by
the Company or the Guarantor, as the case may be, or distribution of assets of
the Company or the Guarantor, as the case may be, of any kind or character,
whether in cash, property or securities, to which the Holders of the
Debentures or the Trustee would be entitled except for the provisions of this
Article, shall be paid by the Company or the Guarantor, as the case may be, or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution directly to the holders of such
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any such Senior Indebtedness may have been issued, as their
respective interests may appear,
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to the extent necessary to pay all such Senior Indebtedness in full in money or
money's worth, after giving effect to any concurrent payment or distribution to
or for the holders of such Senior Indebtedness, before any payment or
distribution is made to the Holders of the Debentures or to the Trustee.
In the event that, notwithstanding the foregoing, any payment by or
distribution of assets of the Company or the Guarantor, as the case may be, of
any kind or character, whether in cash, property or securities, prohibited by
the foregoing, shall be received by the Trustee or the Holders of the
Debentures before all such Senior Indebtedness is paid in full in money or
money's worth, or provision is made for such payment, and if such fact shall
then have been made known to the Trustee or, as the case may be, such Holder,
then and in such event such payment or distribution shall be paid over or
delivered to the holders of such Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any such Senior Indebtedness may have been
issued, as their respective interests may appear, for application to the payment
of all such Senior Indebtedness remaining unpaid to the extent necessary to pay
all such Senior Indebtedness in full in money or money's worth, after giving
effect to any concurrent payment or distribution to or for the holders of such
Senior Indebtedness (but subject to the power of a court of competent
jurisdiction to make other equitable provision, which shall have been determined
by such court to give effect to the rights conferred in this Article upon the
Senior Indebtedness and the holders thereof with respect to Debentures or the
Holders thereof or the Trustee, by a lawful plan of reorganization or
readjustment under applicable bankruptcy law).
The consolidation of the Company or the Guarantor with, or the merger of
the Company or the Guarantor into, another corporation or the liquidation or
dissolution of the Company or the Guarantor following the conveyance or
transfer of its property as an entirety, or substantially as an entirety, to
another corporation upon the terms and conditions provided in Article Eight
shall not be deemed a dissolution, winding up, liquidation or reorganization for
the purposes of this Section if such other corporation shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions stated
in Article Eight. Nothing in this Section shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 607.
The holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Holders of the Debentures, without
incurring responsibility to the Holders of the Debentures and without impairing
or releasing the obligations of the Holders of the Debentures
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hereunder to the holders of Senior Indebtedness: (i) change the manner, place
or terms of payment or change or extend the time of payment of, or renew or
alter, Senior Indebtedness, or otherwise amend in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 1403. Subrogation of Debentures.
Subject to the payment in full of all amounts then due (whether by
acceleration of the maturity thereof or otherwise) on account of the principal
of, premium, if any, and interest on all Senior Indebtedness at the time
outstanding, the Holders of the Debentures shall be subrogated to the rights of
the holders of Senior Indebtedness to receive payments or distributions of
cash, property or securities of the Company or the Guarantor, as the case may
be, applicable to the Senior Indebtedness until the principal of (and premium,
if any) and interest in the Debentures shall be paid in full; and, for the
purposes of such subrogation, no payments or distributions to the holders of
Senior Indebtedness of any cash, property or securities to which the Holders of
the Debentures or the Trustee would be entitled except for the provisions of
this Article, and no payments over pursuant to the provisions of this Article
to the holders of Senior Indebtedness by Holders of the Debentures or the
Trustee, shall, as between the Company or the Guarantor, as the case may be,
their respective creditors other than holders of Senior Indebtedness, and the
Holders of the Debentures, be deemed to be a payment by the Company or the
Guarantor, as the case may be, to or on account of the Senior Indebtedness. It
is understood that the provisions of this Article are and are intended solely
for the purpose of defining the relative rights of the Holders of the
Debentures, on the one hand, and the holders of Senior Indebtedness, on the
other hand.
Nothing contained in this Article or elsewhere in this Indenture or in the
Debentures is intended to or shall impair, as among the Company or the
Guarantor, as the case may be, their respective creditors other than the
holders of Senior Indebtedness, and the Holders of the Debentures, the
obligation of the Company or the Guarantor, as the case may be, which is
absolute and unconditional, to pay to the Holders of the Debentures the
principal of (and premium, if any) and interest on the Debentures as and when
the same shall become due and payable in accordance with their terms,
<PAGE> 97
89
or is intended to or shall affect the relative rights of the Holders of the
Debentures and creditors of the Company or the Guarantor, as the case may be,
other than the holders of Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or the Holder of any Debenture from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article of the holders of
Senior Indebtedness in respect of cash, property or securities of the Company or
the Guarantor, as the case may be, received upon the exercise of any such
remedy.
Upon any payment or distribution of assets of the Company or the Guarantor
referred to in this Article, the Trustee, subject to the provisions of Section
601, and the Holders of the Debentures shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other Person making such payment or distribution, delivered to the Trustee or
to the Holders of the Debentures, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of Senior Indebtedness
and other indebtedness of the Company or the Guarantor, as the case may be, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article.
SECTION 1404. Authorization by Holders of Debentures.
Each Holder of a Debenture by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate, as between the Holder of the Debenture and the holders of Senior
Indebtedness, the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes.
SECTION 1405. Notices to Trustee and Senior Indebtedness Holders.
The Company and Guarantor shall give prompt written notice to the Trustee
of any fact known to the Company or the Guarantor, as the case may be, which
would prohibit the making of any payment or moneys to or by the Trustee in
respect of the Debentures pursuant to the provision of this Article.
Notwithstanding the provisions of this Article or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment of moneys to or by the
Trustee in respect of the Debentures pursuant to the provisions of this Article,
unless and until the Trustee shall have received at its Corporate Trust Office
written notice thereof from the Company or the Guarantor or a holder
<PAGE> 98
90
or holders of Senior Indebtedness or from any trustee therefor; and, prior to
the receipt of any such written notice, the Trustee, subject to the provisions
of Section 601, shall be entitled in all respects to assume that no such facts
exist; provided, however, that if the Trustee shall not have received at least
three Business Days prior to the date upon which by the terms hereof any such
moneys may become payable for any purpose (including, without limitation, the
payment of the principal of (premium, if any) or interest on any Debenture) with
respect to such moneys the notice provided for in this Section, then, anything
herein contained to the contrary notwithstanding, the Trustee shall have full
power and authority to receive such moneys and to apply the same to the purpose
for which they were received and shall not be affected by any notice to the
contrary which may be received by it within three Business Days prior to such
date.
The Trustee shall be entitled to rely on the delivery to it of a written
notice by a Person representing himself to be a holder of Senior Indebtedness
(or a trustee on behalf of such holder) to establish that such notice has been
given by a holder of Senior Indebtedness or a trustee on behalf of any such
holder. In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
The Company and the Guarantor agree that if any default shall occur with
respect to any Senior Indebtedness, which default permits the holders of such
Senior Indebtedness to accelerate the maturity thereof, the Company will give
prompt notice in writing of such happening to all known holders of Senior
Indebtedness and shall certify to each such holder the name of the Trustee.
SECTION 1406. Trustee's Relation to Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article in respect of any Senior Indebtedness at any time held
by it, to the same extent as any other holder of Senior Indebtedness, and
nothing in Section 613 or elsewhere in this Indenture shall deprive the Trustee
of any of its rights as such holder.
<PAGE> 99
91
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article, and no implied covenants or obligations
with respect to the holders of Senior Indebtedness shall be read into this
Indenture against the Trustee. The Trustee shall not owe any fiduciary duty to
the holders of Senior Indebtedness but shall have only such obligations to such
holders as are expressly set forth in this Article.
SECTION 1407. No Impairment of Subordination.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or the Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company or the Guarantor with the terms,
provisions and covenants of this Indenture, regardless of any knowledge thereof
which any such holder may have or otherwise be charged with.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
<PAGE> 100
92
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
MAXTOR CORPORATION
(a Delaware corporation)
By /s/ Robert G. Toal
-----------------------
ATTEST:
/s/ Gregory M. Gallo
- ---------------------------
[CORPORATE SEAL]
MAXTOR CORPORATION
(a California corporation)
By /s/ Robert G. Toal
-----------------------
Attest:
/s/ Gregory M. Gallo
- ---------------------------
[CORPORATE SEAL]
SECURITY PACIFIC NATIONAL BANK
By /s/ Jullian Wallace
---------------------------
Attest:
/s/ Nora Brandstadter
- ---------------------------
[CORPORATE SEAL]
<PAGE> 101
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the 5th day of March, 1987, before me personally came Robert G. Toal,
to me known, who, being by me duly sworn, did depose and say that he resides at
San Jose, California; that he is the Senior Vice President of MAXTOR
CORPORATION (a Delaware Corporation), one of the corporations described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
[NOTARIAL SEAL] S/S BERNARDINE H. JOLLY
-------------------------------------
BERNARDINE H. JOLLY
Notary Public, State of New York
No. 60-4779082
Qualified in Westchester County
Certificate Filed in New York County
Commission Expires March 30, 1987
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the 5th day of March, 1987, before me personally came Gregory M. Gallo,
to me known, who, being by me duly sworn, did depose and say that he resides at
Palo Alto, California; that he is Assistant Secretary of MAXTOR CORPORATION (a
California corporation), one of the corporations described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
[NOTARIAL SEAL] S/S BERNARDINE H. JOLLY
-------------------------------------
BERNARDINE H. JOLLY
Notary Public, State of New York
No. 60-4779082
Qualified in Westchester County
Certificate Filed in New York County
Commission Expires March 30, 1987
<PAGE> 102
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the 5th day of March, 1987, before me personally came Nora Brandstadter,
to me known, who, being by me duly sworn, did depose and say that he resides at
Embarcadero #300, San Francisco, California; that he is Vice President of
SECURITY PACIFIC NATIONAL BANK, one of the corporations described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
[NOTARIAL SEAL] S/S BERNARDINE H. JOLLY
-------------------------------------
BERNARDINE H. JOLLY
Notary Public, State of New York
No. 60-4779082
Qualified in Westchester County
Certificate Filed in New York County
Commission Expires March 30, 1987
<PAGE> 1
EXHIBIT 10.44
Mr. Phillip C. Duncan
1616 Big Bend Drive
Milpitas, CA 95035
Dear Phillip:
Maxtor Corporation is pleased to offer the position of Vice President, Human
Resources reporting to Michael R. Cannon, President and Chief Executive Officer.
Your salary will be $220,000 per annum. In addition, Maxtor Corporation will
give you an $80,000 sign-on bonus to be paid out the first week of employment.
This bonus is subject to applicable taxes at the time of payment.
Maxtor provides its employees with generous health and other benefits, including
medical, dental, life and long-term disability insurance, four weeks personal
time off, ten paid holidays and a 401(k) program and quarterly profit sharing
based on financial performance.
You will be eligible for a management incentive bonus which will be 50% of your
base salary and which will be paid out quarterly based on predetermined
performance goals for both corporate measures and individual measures. In
addition, contingent upon the approval of the Board of Directors of Maxtor, you
will be eligible to receive 80,000 options in our new stock option program.
Details of the program will be provided to you at the time of the approval of
your stock option award.
By signing and accepting this offer, you agree to repay your sign-on bonus on a
daily prorated basis if you voluntarily resign from your employment at Maxtor
within one year of your date of hire. If your employment is involuntarily
terminated without cause you will receive a severance package equivalent to nine
month's base salary.
Moreover, in compliance with federal immigration law, you will be required to
provide documentary evidence of your identity and eligibility for employment in
the United States. Such documentation must be provided within three (3) business
days of your date of hire. In addition, as a condition of your employment with
Maxtor, it will be necessary for you to complete, sign and return with this
offer of employment, the attached Maxtor Employee Agreement Regarding
Confidentiality and Inventions.
This offer of employment is contingent upon your agreeing to, and passing, a
drug screening analysis. You may contact Doctors on Duty at (408) 942-0333 to
make arrangements.
Also, it is customary with Maxtor employees that you will not have an employment
contract, and either you or Maxtor can terminate the employment relationship
with or without cause at any time.
<PAGE> 2
Phillip, we at Maxtor look forward to having you as a team member and are
confident that you will make significant contributions to the company's future.
Please sign below signifying your acceptance of this position and return this
letter to the Human Resources Department by July 22, 1996. Please plan on
attending new employee orientation at 510 Cottonwood Drive in the HR conference
room, at 9:00 a.m. on the Monday you begin employment.
Sincerely,
/s/ Michael R. Cannon
Michael R. Cannon
President and Chief Executive Officer
Accepted: /s/ Phillip C. Duncan Date:__________________________
Expected Start Date:_______________
-2-
<PAGE> 1
EXHIBIT 10.45
RECEIVABLES PURCHASE AND SALE AGREEMENT
Dated as of April 8, 1998
among
MAXTOR RECEIVABLES CORPORATION,
as Seller,
MAXTOR CORPORATION,
as Collection Agent,
CORPORATE RECEIVABLES CORPORATION,
as Purchaser,
CITICORP NORTH AMERICA, INC.,
as Agent,
and
BANKERS TRUST COMPANY,
as Trustee.
RECEIVABLES PURCHASE AND SALE AGREEMENT
Dated as of April 8, 1998
MAXTOR RECEIVABLES CORPORATION, a California corporation (the
"Seller"), MAXTOR CORPORATION, a Delaware corporation (together with any
successors thereto appointed in accordance with Article VI hereof, the
"Collection Agent"), CORPORATE RECEIVABLES CORPORATION, a California corporation
(the "Purchaser"), CITICORP NORTH AMERICA, INC., a Delaware corporation
("CNAI"), as agent for the Purchaser and the
1
<PAGE> 2
other Owners (as defined below) (the "Agent") and BANKERS TRUST COMPANY, a New
York banking corporation, as trustee (the "Trustee"), agree as follows:
PRELIMINARY STATEMENTS:
(1) Certain terms which are capitalized and used throughout this
Agreement are defined in Article I of this Agreement.
(2) Maxtor Corporation, a Delaware corporation ("Maxtor"), the Purchaser
and CNAI, as Agent, were each party to the Receivables Purchase and Sale
Agreement dated as of March 30, 1996 (the "Original Agreement"), whereby Maxtor
had from time to time sold to the Purchaser, and the Purchaser had from time to
time purchased from Maxtor, "Purchased Interests" (as defined in the Original
Agreement).
(3) On the Closing Date, the Purchaser and Maxtor each will have entered
into, and fully performed, the Receivables Repurchase Agreement dated as of
April 8, 1998 (as amended, supplemented or otherwise modified from time to time,
the "Repurchase Agreement"), whereby Maxtor will have repurchased each
"Purchased Interest" previously purchased by the Purchaser pursuant to the
Original Agreement.
(4) Maxtor and the Seller have entered into the Receivables Contribution
and Sale Agreement pursuant to which the Seller will, from time to time,
purchase from Maxtor "Receivables" (as defined therein) in which the Seller
intends to sell interests in Subject Receivables to the Purchaser, represented
by Purchased Interests, hereunder.
(5) The Trustee has agreed to (i) maintain certain accounts in which
Collections are held, (ii) at the written direction of the Collection Agent,
distribute such Collections, (iii) review the Purchaser Reports and the Daily
Reports prepared by the Collection Agent and (iv) perform various other
functions in connection therewith, in each case on the terms and conditions
hereinafter set forth.
(6) The parties hereto have agreed, on the terms and conditions
hereinafter set forth, to provide for, among other things, the sale by the
Seller of such Purchased Interests.
(7) CNAI has been requested and is willing to act as Agent.
NOW, THEREFORE, the parties agree, effective as of the Closing Date and
subject to the satisfaction of the conditions precedent set forth in Section
3.01 hereof, as follows:
2
<PAGE> 3
ARTICLE I
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):
"Additional Assigned Rights" means all of the Seller's right, title and
interest in, to and under the following:
(i) each Purchase Document to which it is a party;
(ii) all rights to receive moneys due and to become due under
or pursuant to each such Purchase Document;
(iii) all rights to receive proceeds of any indemnity, warranty
or guaranty with respect to each such Purchase Document;
(iv) claims for damages arising out of or for breach of or
default under each such Purchase Document;
(v) the right to perform under each such Purchase Document and
to compel performance and otherwise exercise all remedies thereunder;
and
(vi) all proceeds of any and all of the foregoing Additional
Assigned Rights (including, without limitation, proceeds which
constitute property of the types described in clauses (i) through (v)).
"Adjusted Eurodollar Rate" means, with respect to any Purchased
Interest for any period, an interest rate per annum equal to the rate per annum
obtained by dividing (i) the rate per annum at which deposits in U.S. Dollars
are offered by the principal office of Citibank in London, England to prime
banks in the London interbank market at 11:00 a.m. (London time) two Business
Days before the first day of such period in an amount substantially equal to the
amount to which the "Adjusted Eurodollar Rate" is to be applied and for a period
equal to such period by (ii) a percentage equal to 100% minus the Eurodollar
Reserve Percentage for such period.
"Adverse Claim" means any claim of ownership or any lien, security
interest or other charge or encumbrance, or other type of preferential
arrangement having the effect of a lien or security interest.
"Affiliate" means (i) as to any Person, any other Person that (x)
directly or indirectly, is in control of, is controlled by or is under common
control with such Person (provided that if such Person is a proposed Selling
Affiliate at the time of determination, a Person shall be deemed to
3
<PAGE> 4
"control" another Person only if such Person, directly or indirectly,
beneficially owns or holds at least 51% of the issued and outstanding shares of
the capital stock of such other Person), or (y) is a director or officer of such
Person or of any other Person that, directly or indirectly, is in control of, is
controlled by or is under common control with such Person, and (ii) as to CNAI
or the Purchaser, shall also include the Purchaser and CNAI, respectively, and
any other Person who has a relationship to CNAI comparable to that of the
Purchaser.
"Affiliated Obligor" means any Obligor which is an Affiliate of another
Obligor.
"Agent" has the meaning specified in the recital of parties to this
Agreement.
"Agent's Account" means the special account (account number 40517805) of
the Agent maintained at the office of Citibank, ABA No.: 021000089; at 399 Park
Avenue, New York, New York; Attention: Robert DiLeo, Re: Maxtor Receivables
Corporation.
"Allocation Percentage" means, at any time, the sum of the Purchased
Interests (expressed in percentage terms) at such time.
"Alternate Base Rate" means, with respect to any Purchased Interest for
any period, a fluctuating interest rate per annum in effect from time to time,
which rate per annum shall at all times be equal to the sum of (1) 2%, and (2)
the highest of:
(i) the rate of interest announced publicly by Citibank in New
York, New York from time to time as Citibank's base rate;
(ii) the stun (adjusted to the nearest 1/4 of 1% or, if there
is no nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (A) 1/2 of 1%
per annum, plus (B) the rate obtained by dividing (1) the latest
three-week moving average of secondary market morning offering rates in
the United States for three-month certificates of deposit of major
United States money market banks, such three-week moving average
(adjusted to the basis of a year of 360 days) being determined weekly on
each Monday (or, if such day is not a Business Day on the next
succeeding Business Day) for the three-week period ending on the
previous Friday by Citibank on the basis of such rates reported by
certificate of deposit dealers to and published by the Federal Reserve
Bank of New York or, if such publication shall be suspended or
terminated, on the basis of quotations for such rates received by
Citibank from three certificate of deposit dealers of recognized
standing selected by Citibank, by (2) a percentage equal to 100% minus
the average of the daily percentages specified during such three-week
period by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including,
but not limited to, any emergency, supplemental or other marginal
reserve requirement) for Citibank with respect to liabilities consisting
of or including (among other liabilities) three-month U.S. Dollar
nonpersonal time deposits in the United States, plus (C) the average
during such three-week period of the annual assessment rates estimated
by Citibank for determining the then current annual assessment payable
by Citibank to the Federal Deposit Insurance Corporation (or any
successor) for insuring U.S. Dollar deposits of Citibank in the United
States; and
4
<PAGE> 5
(iii) 1/2 of 1% per annum above the fluctuating interest rate
per annum equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or, if
such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average of the
quotations for such day for such transactions received by Citibank from
three Federal funds brokers of recognized standing selected by it.
"Amortization Period" means the period beginning on the Termination Date
and ending upon the payment in full to each Owner of each Purchased Interest of
the Capital with respect thereto, all accrued and unpaid yield thereon and all
other amounts owed to any Beneficiaries under any Purchase Document.
"Arrangement Fee" has the meaning specified in Section 2.08.
"Assignee" means any Person as the assignee of all or any portion of any
Purchased Interest pursuant to Section 9.01.
"Assignee Rate" means, with respect to any Purchased Interest for any
period, an interest rate per annum equal to the Adjusted Eurodollar Rate plus
3%; provided, however, that if (i) it shall become unlawful for any Bank to
obtain funds in the London interbank market in order to purchase, fund or
maintain any Purchased Interest hereunder or deposits in dollars (in the
applicable amounts) are not being offered by banks in the London interbank
market, or (ii) any Bank is unable to establish the Adjusted Eurodollar Rate for
any applicable period due to the amount of applicable Capital to which the
Adjusted Eurodollar Rate is to be applied, the period in respect of which the
Adjusted Eurodollar Rate is to be applied or circumstances affecting the London
interbank market generally or (iii) a majority of Owners notifies the Seller and
the Agent of their determination that the Adjusted Eurodollar Rate will not
adequately reflect the cost of funding or maintaining any Purchased Interest
hereunder (until a majority of Owners shall have notified the Seller and the
Agent that such majority has determined that the Adjusted Eurodollar Rate will
adequately reflect such cost), then, in each case, the Assignee Rate shall be
the Alternate Base Rate in effect from time to time; provided further, that if
(i) any Purchase is made on a day which is not the first day of an Interest
Period, and (ii) any Purchase is made without the Agent having received notice
in writing thereof by 11:00 a.m. (New York City time) on the third Business Day
prior to the date of such Purchase, then, in each case, the Assignee Rate shall,
in respect of the Purchased Interest so purchased, be the Alternate Base Rate in
effect from time to time for the duration of the current Interest Period and
shall thereafter be the Adjusted Eurodollar Rate in effect from time to time;
provided that following the occurrence and during the continuation of an Event
of Termination, the "Assignee Rate" shall be the applicable interest rate per
annum determined pursuant to the provisions set forth above plus 2% per annum,
"Assignment" means an assignment by the Seller to the Agent in
substantially the form of Exhibit A hereto, evidencing ownership of a Purchased
Interest.
"Available Investments" means (i) short-term obligations of the United
States or any agency thereof, (ii) commercial paper issued from time to time by
the Purchaser, and any
5
<PAGE> 6
commercial paper having, at the time of acquisition thereof, a rating of A-1 or
better from S&P or P-1 from Moody's, (iii) money market mutual funds registered
under the Investment Company Act of 1940, as amended, having a rating at the
time of such investment, in the highest investment category granted by S&P and
Moody's (including, without limitation, funds for which the Trustee or any of
its Affiliates is investment manager or investment adviser) and (iv), in
connection with any Purchased Interest, other promissory notes, certificates of
deposit or other debt instruments selected by the Owner of such Purchased
Interest and approved by the Agent.
"Average Maturity" means, on any day, that period (expressed in days)
equal to the average maturity of the Subject Receivables as shall be calculated
by the Collection Agent as set forth in the most recent Purchaser Report in
accordance with the provisions thereof; provided, however, that, if the Agent,
upon consultation with Maxtor, shall in its reasonable judgment disagree with
any such calculation, the Agent may recalculate the Average Maturity for such
day.
"Bank Agreement" means the Receivables Purchase and Sale Agreement dated
as of the date hereof among the Seller, the banks, financial institutions and
other institutional lenders party thereto, CNAI, individually and as Agent, and
the Trustee, as the same may from time to time be amended, supplemented or
otherwise modified pursuant to the terms thereof and hereof.
"Banks" means the banks and financial institutions (other than the
Agent) parties to the Bank Agreement, together with their successors and
assigns.
"Beneficiaries" means the Trustee, the Purchaser, the Banks, the Owners,
the Participants and the Agent.
"Breakage Costs" means, for each reduction of the Capital held by CRC
other than such reductions occurring on a Settlement Date, the amount, if any,
by which (i) the additional interest at the Purchaser Rate (calculated without
taking into account any breakage costs) which would have accrued on an amount
equal to the amount of such reduction from the time of such reduction to the
Settlement Date next succeeding such reduction exceeds (ii) the income received
by CRC to the Settlement Date next succeeding such reduction from investing the
proceeds of such reduction; except that, if the Seller gives at least five
Business Days' prior written notice to the Agent that the Seller intends on a
specified Business Day to reduce such Capital by a specified amount and the
Agent agrees to such reduction, then the excess resulting from that reduction
shall be deemed to be zero.
"Business Day" means any day on which banks are not authorized or
required to close in New York City and, in connection with the Adjusted
Eurodollar Rate, on which dealings are carried on in the London interbank
market.
"Capital" of any Purchased Interest means, at any time, the original
amount paid to the Seller for such Purchased Interest at the time of its
acquisition by the Purchaser pursuant to Sections 2.01 and 2.02, in each case
reduced from time to time by Collections distributed on account of such Capital
pursuant to Section 2.06; provided that if such Capital shall have been reduced
by any distribution and thereafter all or a portion of such distribution is
rescinded or
6
<PAGE> 7
must otherwise be returned for any reason, such Capital shall be increased by
the amount of such rescinded or returned distribution, as though it had not been
made.
"Citibank" means Citibank, N.A., a national banking association.
"Closing Date" means the date on which the initial Purchase hereunder is
made.
"CNAI" has the meaning specified in the recital of parties to this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated and rulings issued thereunder.
"Collection Agent" has the meaning specified in the recital of parties
to this Agreement.
"Collection Agent Fee" has the meaning specified in Section 2.08.
"Collection Date" means the date following the earlier to occur of (i)
the Settlement Date on which the aggregate Capital for all Purchased Interests
shall have been reduced to zero and each of the Indemnified Parties shall have
received all Yield, Collection Agent Fees, Trustee's Fee and other fees and
other amounts payable to it hereunder, and under the other Purchase Documents,
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,
Maxtor 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.
"Collection Delay Period" means ten (10) Business Days or such other
number of days as the Agent may reasonably select upon three (3) Business Days'
notice to the Seller.
"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 2.05(f), 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 Sections 6.06 and 6.07.
"Commercial Paper Note" means a promissory note having a term not
exceeding 270 days.
"Company" means Hyundai Heavy Industries Co., Ltd., a company
incorporated and existing under the laws of the Republic of Korea.
"Company/Maxtor Agreement" means an agreement in substantially the form
of Exhibit D-I hereto, duly executed and delivered by the parties thereto, as
such agreement may from time to time be amended, supplemented or otherwise
modified pursuant to the terms thereof and hereof.
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<PAGE> 8
"Company/Seller Agreement" means an agreement in substantially the form
of Exhibit D-2 hereto, duly executed and delivered by the parties thereto, as
such agreement may be amended, supplemented or otherwise modified pursuant to
the terms thereof and hereof.
"Concentration Account" has the meaning specified in Section 6.06(a).
"Concentration Account Bank" has the meaning specified in Section
6.06(a).
"Concentration Limit" means, for any Designated Obligor at any time, a
figure equal to the greater of. (a) 5%, and (b) the amount specified by the
Agent to the Seller in writing from time to time; provided that, the Agent may
cancel any "Concentration Limit" at any time upon three Business Days' notice to
the Seller; provided further that in the case of a Designated Obligor and any
Affiliated Obligor, the "Concentration Limit" for such Obligor shall be
calculated as if such Obligor and such Affiliated Obligor are one Obligor.
"Consent and Agreement" means a consent and agreement of a Selling
Affiliate, in form and substance reasonably satisfactory to the Agent, with
respect to the Selling Affiliate Receivables Contribution and Sale Agreement of
such Selling Affiliate and the rights and interests of the Seller with respect
thereto in which an interest is granted hereunder, as such consent and agreement
may from time to time be amended, supplemented or otherwise modified pursuant to
the terms thereof.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
Debt, lease, dividend, letter of credit or other obligation of another Person,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed (otherwise than for collection or deposit in the ordinary
course of business), co-made, or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable, including, without limitation, any such obligation for which that Person
is in effect liable through any agreement (contingent or otherwise) to purchase,
repurchase or otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation (whether in the
form of loans, advances, stock purchases, capital contributions or otherwise),
or to maintain the solvency or any balance sheet, income or other financial
condition of the obligor of such obligation, or to make payment for any
products, materials or supplies or for any transportation, services or lease
regardless of the non-delivery or non-furnishing thereof, in any case if the
purpose or intent of such agreement is to provide assurance that such obligation
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such obligation will be protected (in
whole or in part) against loss in respect thereof. The amount of any Contingent
Obligation shall be equal to the amount of the obligation so guaranteed or
otherwise supported.
"Contract" means an agreement between Maxtor 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, for
Receivables with respect to which "Purchased Interests" have been repurchased by
Maxtor pursuant to the Repurchase Agreement, as otherwise approved by the Agent
under the Original Agreement), 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
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<PAGE> 9
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).
"Corporate Trust Office" has the meaning specified in Section 11.13.
"CP Rate" means, with respect to CRC for any Purchased Interest for any
Interest Period, the per annum rate equivalent to the weighted average of the
per annum rates paid or payable by CRC from time to time as interest on or
otherwise (by means of interest rate hedges or otherwise) with respect to those
Commercial Paper Notes issued by CRC that are allocated, in whole or in part, by
the Agent (on behalf of CRC or such other company) to fund or maintain such
Purchased Interest during such Interest Period, as determined by the Agent (on
behalf of CRC), which rates shall reflect and give effect to the commissions of
placement agents and dealers with respect to such Commercial Paper Notes, to the
extent such commissions are allocated, in whole or in part, to such Commercial
Paper Notes by the Agent (on behalf of CRC); provided, however, that, if any
component of such rate is a discount rate, in calculating the "CP Rate" for such
Interest Period, the Agent shall for such component use the rate resulting from
converting such discount rate to an interest-bearing equivalent rate per annum.
"CRC" means Corporate Receivables Corporation, a California corporation
and any other securitization company administered by Citicorp North America,
Inc., which is an assignee of CRC under the Purchase Documents.
"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 Receivables Contribution and Sale
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).
"Cure Account" has the meaning specified in Section 6.07.
"Cure Funds" means Collections which, from time to time, are deposited
into the Cure Account.
"Cure Period" means the period beginning on and including a Pool
Noncompliance Date and ending on but excluding the earlier of (a) the first date
thereafter on which the Net Subject Receivables Balance equals or exceeds the
Required Net Subject Receivables Balance and (b) the fifth consecutive Business
Day following the occurrence of such Pool Non-compliance Date.
"Daily Report" means an Officer's Certificate of the Collection Agent
substantially in the form of Exhibit I hereto.
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"Debt" means (i) indebtedness for borrowed money, (ii) obligations
evidenced by bonds, debentures, notes or other similar instruments, (iii)
obligations with a term i n 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" means, as of any date, the ratio (expressed as a
percentage) that is obtained by dividing (i) the aggregate Outstanding Balance
of all Receivables that became Defaulted Receivables during the Fiscal Month
most recently ended on or before such date by (ii) the aggregate Outstanding
Balance (measured for each Receivable at the time of acquisition) of all
Receivables that were acquired by the Seller during the fourth Fiscal Month
immediately preceding the Fiscal Month most recently ended on or before such
date, provided that the "Default Ratio" with respect to any date prior to the
Closing Date shall be set forth on Schedule A to the Purchaser Report delivered
pursuant to Section 3.01(z).
"Default Termination Ratio" means, as of any date, the ratio (expressed
as a percentage) that is obtained by dividing (i) the aggregate Outstanding
Balance of all Defaulted Receivables on such date by (ii) the aggregate
Outstanding Balance of all Receivables as of such date, provided that the
"Default Termination Ratio" with respect to any date prior to the Closing Date
shall be set forth on Schedule A to the Purchaser Report delivered pursuant to
Section 3.01(z).
"Defaulted Receivable" means a Receivable:
(i) as to which any payment, or part thereof, remains unpaid for
91 days or more from the original due date for such payment;
(ii) as to which the Obligor thereof has taken any action, or
suffered any event to occur, of the type described in Section 7.01 (g); or
(iii) which, consistent with the applicable Credit and Collection
Policy, would be written off the Seller's, Maxtor's or any Selling Affiliate's
books, as applicable, as uncollectible.
"Delinquency Ratio" means, as of any date, the ratio (expressed as a
percentage) that is obtained by dividing (i) the aggregate Outstanding Balance
of all Receivables that were Delinquent Receivables on such day by (ii) the
aggregate Outstanding Balance of all Receivables on such day provided that the
"Delinquency Ratio" with respect to any date prior to the Closing Date shall be
set forth on Schedule A to the Purchaser Report delivered pursuant to Section
3.01(z).
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<PAGE> 11
"Delinquent Receivable" means a Receivable that is not a Defaulted
Receivable and:
(i) as to which any payment, or part thereof, remains unpaid for
31 days or more from the original due date for such payment; or
(ii) which, consistent with the applicable Credit and Collection
Policy, would be classified as delinquent by the Seller, Maxtor or any
Selling Affiliate, as applicable.
"Deposit Date" means each Business Day on which any Collections are
deposited in the Concentration Account.
"Designated Obligor" means, at any time, each Obligor; provided,
however, that any Obligor shall cease to be a Designated Obligor upon at least
three Business Days' notice by the Agent to the Seller, or by the Seller to the
Agent.
"Dilution Horizon Factor" means, as of any date, the fraction (i) the
numerator of which is the aggregate Outstanding Balance (measured for each
Receivable at the time of acquisition) of all Eligible Receivables and Foreign
Receivables acquired by the Seller during the two Fiscal Months most recently
ended on or before such date and (ii) the denominator of which is the
Outstanding Balance of all Eligible Receivables as of the last day of the Fiscal
Month most recently ended on or before such date; provided that the "Dilution
Horizon Factor" with respect to any date prior to the Closing Date shall be set
forth on Schedule A to the Purchaser Report delivered pursuant to Section 3.01
(z).
"Dilution Ratio" means, as of any date, a fraction (expressed as a
percentage), the numerator of which is (i) the aggregate Dilutions recorded
during the Fiscal Month most recently ended on or before such date, and the
denominator of which is (ii) the aggregate Outstanding Balance (measured for
each Receivable at the time of acquisition) of all Receivables that were
acquired by the Seller during the second Fiscal Month most recently ended on or
before such date, provided that the "Dilution Ratio" with respect to any date
prior to the Closing Date shall be set forth on Schedule A to the Purchaser
Report delivered pursuant to Section 3.01(z).
"Dilution Reserve" or "DR" means, on any date, an amount equal to:
DR = NSRB x DRP
where NSRB = Net Subject Receivables Balance as of the
close of such Business Day
DRP = The Dilution Reserve Percentage, as of the
close of business of the Collection Agent
on such date.
"Dilution Reserve Percentage" means, as of any date, the product of (A)
the sum of (i) the product of (x) one and one-half (1.5) and (y) the average of
the Dilution Ratios calculated for
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<PAGE> 12
each of the twelve (12) Fiscal Months most recently ended on or before such
date and (ii) the Dilution Volatility Factor as of such date, and (B) the
Dilution Horizon Factor as of such date.
"Dilution Volatility Factor" means, as of any date, a percentage equal
to the product of (A) the amount by which (i) the highest Dilution Ratio
calculated for any Fiscal Month during the 12 Fiscal Month period most recently
ended on or before such date exceeds (ii) the average of the Dilution Ratio
calculated for each Fiscal Month during such period, and (B) the ratio of (i)
the highest Dilution Ratios calculated for any Fiscal Month during such period
to (ii) the average of the Dilution Ratios calculated for each Fiscal Month
during such period.
"Dilutions" means, for any period, the aggregate amount of any
reductions or cancellations of the Outstanding Balance of the Subject
Receivables for any reason other than (i) the Obligors in respect thereto having
made payments thereon; or (ii) the Seller having written off such Subject
Receivables in accordance with the Credit and Collection Policy.
"Dynamic Loss Reserve Percentage" means, as of any date, the product of
(i) the highest average of Default Ratios for any period of three (3)
consecutive Fiscal Months, ending during the preceding twelve (12) Fiscal
Months, (ii) two (2), and (iii) the Loss Horizon Ratio as of such date.
"Eligible Institution" means a depository institution organized under
the laws of the United States of America or any state thereof or the District of
Columbia (or any domestic branch of a foreign bank authorized under any such
laws), (a) whose senior long-term unsecured debt obligations are rated at least
A- or better by S&P and A3 or better by Moody's, and (b) which is subject to
regulation regarding fiduciary funds on deposit substantially similar to 12
C.F.R. Section 9.10(b), if applicable, and (c) which has a combined capital and
surplus of at least $1 00,000,000.
"Eligible Receivable" means, at any time, 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 at the time of any Purchase of an
interest therein under this Agreement is a Designated Obligor;
(iii) the Obligor of which at the time of any Purchase of an
interest therein under this Agreement is not the Obligor of Defaulted
Receivables in an aggregate amount in excess of 10% of the aggregate Outstanding
Balance of all Subject Receivables of such Obligor;
(iv) which at the time of any Purchase of an interest therein
under this Agreement is not a Defaulted Receivable or Delinquent Receivable
except for Delinquent Receivables at the time of the initial purchase hereunder
which were "Delinquent Receivables" under the Original Agreement;
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<PAGE> 13
(v) which, according to the Contract related thereto, is required
to be paid in full within no more than 90 days, of the original billing date
therefor;
(vi) 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;
(vii) 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;
(viii) 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 any Purchased Interest;
(ix) which is denominated and payable only in U.S. dollars in the
United States;
(x) 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
date of acquisition thereof by the Seller 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,
Maxtor or the Selling Affiliate, as applicable, 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); .
(xi) which, together with the Contract related thereto, on the
date of acquisition thereof by the Seller 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;
(xii) with respect to which performance (other than by the
Obligor thereof, or by the Seller, Maxtor or any Selling Affiliate, as
applicable, under any related warranty to the extent not required to have been
performed by the Seller, Maxtor or such Selling Affiliate by the time of
determination) under the related Contract has been completed;
(xiii) which is, concurrently with the time of the acquisition
thereof by the Seller, legally and beneficially owned by the Seller free and
clear of any Adverse Claim except as created hereunder;
(xiv) which (A) on the date of the acquisition thereof by the
Seller 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
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<PAGE> 14
Receivable) as the Agent may from time to time reasonably specify to the Seller
prior to such date; and
(xv) as to which, at least five Business Days prior to the date
of acquisition thereof by the Seller, 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.
"ERISA Affiliate" means any Person who for purposes of Title IV of ERISA
is a member of the Seller's, Maxtor's or any Selling Affiliate's controlled
group, or under common control with the Seller, Maxtor or any Selling Affiliate,
within the meaning of Section 414 of the Code.
"ERISA Event" means (i) the occurrence with respect to a Plan of a
reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day
notice requirement with respect thereto has been waived by the PBGC; (ii) the
provision by the administrator of any Plan of a notice of intent to terminate
such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice
with respect to a plan amendment referred to in Section 4041(e) of ERISA);
(iii) the cessation of operations at a facility of the Seller, Maxtor or any
Selling Affiliate or any ERISA Affiliate of any thereof in the circumstances
described in Section 4062(e) of ERISA; (iv) the withdrawal by the Seller, Maxtor
or any Selling Affiliate or any ERISA Affiliate of any thereof from a Multiple
Employer Plan during a plan year for which it was a substantial employer, as
defined in Section 4001(a)(2) of ERISA; (v) the conditions set forth in Section
302(f)(1)(A) and (B) of ERISA to the creation of a lien upon property or rights
to property of the Seller, Maxtor or any Selling Affiliate or any ERISA
Affiliate of any thereof for failure to make a required payment to a Plan are
satisfied; (vi) the adoption of an amendment to a Plan requiring the provision
of security to such Plan, pursuant to Section 307 of ERISA; or (vii) the
institution by the PBGC of proceedings to terminate a Plan, pursuant to Section
4042 of ERISA, or the occurrence of any event or condition described in Section
4042 of ERISA that could constitute grounds for the termination of, or the
appointment of a trustee to administer, a Plan.
"Eurodollar Increased Costs" means an increase in the cost to any Owner
of agreeing to purchase or purchasing, or maintaining the ownership of, any
Purchased Interest in respect of which Yield is computed by reference to the
Adjusted Eurodollar Rate due to either (i) the introduction of or any change
(other than any change by way of imposition or increase of the Eurodollar
Reserve Percentage) in or in the interpretation of any law or regulation, or
(ii) the compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law).
"Eurodollar Reserve Percentage" means, with respect to any Purchased
Interest for any period, the reserve percentage applicable two Business Days
before the first day of such period under regulations issued from time to time
by the Board of Governors of the Federal Reserve System (or any successor) (or,
if more than one such percentage shall be so applicable, the daily average of
such percentages for those days in such period during which any such percentage
shall
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<PAGE> 15
so be applicable) for determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement) for Citibank with
respect to liabilities or assets consisting of or including "eurocurrency
liabilities" as that term is used in Regulation D, as in effect from time to
time, of the Board of Governors of the Federal Reserve System (or with respect
to any other category of liabilities that includes deposits by reference to
which the Adjusted Eurodollar Rate is determined) having a term equal to such
period.
"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(b)(iv)
to be satisfied, provided, that the Seller is promptly notified of any such
failure (if such failure or event occurs as a result of a deemed rating) of any
condition set forth in Section 3.02(b)(iv).
"Event of Termination" has the meaning specified in Section 7.01.
"Facility" means the willingness of the Purchaser to consider, in its
sole discretion pursuant to Article II, the purchase from the Seller of
Purchased Interests from time to time.
"Facility Fee" has the meaning specified in Section 2.08.
"Facility Termination Date" means the earlier of April 6, 2001 or the
date of termination of the Facility pursuant to Section 2.03 or Section 7.01.
"Fee Letter" means the letter agreement regarding additional fees, dated
the date hereof, between the Seller and the Agent, as such letter agreement may
from time to time be amended, modified or supplemented pursuant to the terms
thereof.
"Financial Officer" means, with respect to any Person, the chief
financial officer, treasurer, controller or other officer or member of
management of such Person with significant responsibility for the financial
affairs of such Person.
"Fiscal Month" means an accounting period of such number of consecutive
days commencing on the day after the day as of which Maxtor closes its books of
account for a month and ending on the day as of which Maxtor next closes its
books of account for a month, as Maxtor may from time to time specify in writing
to the Agent; provided that 12 of such consecutive accounting periods shall
constitute a fiscal year of Maxtor.
"GAAP" means generally accepted accounting principles in the United
States of America, consistently applied, in effect from time to time.
"HC" means Hyundai Corporation, a company duly organized under the laws
of the Republic of Korea.
"HEA" means Hyundai Electronics America, a California corporation.
"HEI" means Hyundai Electronics Industries Co., Ltd., a company
incorporated and existing under the laws of the Republic of Korea.
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<PAGE> 16
"HMM" means Hyundai Merchant Marine Co., Ltd., a company duly organized
under the laws of the Republic of Korea.
"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 Country" means a Tier I Foreign Country or a Tier II
Foreign Country.
"Included Foreign Receivable" means, at any time, a Receivable of an
Obligor located in any Included Foreign Country which is not an Eligible
Receivable but would qualify as an Eligible Receivable except that the Obligor
of such a Receivable is not a United States resident.
"Indemnified Party" means the Purchaser, any Bank, CNAI, the Trustee,
any Owner, any Participant, the Agent, or any Affiliate of any thereof and their
respective officers, directors, employees and agents.
"Insufficiency" means, with respect to any Plan, the amount, if any, of
its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"Interest Period" means:
(i) with respect to the CP Rate and the Alternate Base Rate, the
period from the Closing Date to the end of the first Settlement Period ending
after the Closing Date and thereafter a period equal to each Settlement Period,
and
(ii) with respect to the Adjusted Eurodollar Rate, the period
from the Closing Date to the first Settlement Date after the Closing Date and
thereafter a period from each Settlement Date to the first or, upon the request
of the Seller and with the consent of the Agent, second or third next succeeding
Settlement Date; provided, however that, with respect to any Interest Period
ending on such second or third next succeeding Settlement Date, for purposes of
calculating "Yield" and the "Yield/Fee Reserve" for any Purchased Interest with
respect to any Settlement Date occurring prior to the end of such Interest
Period, the "Interest Period" shall be deemed for purposes of such calculations
to be the period from the previous Settlement Date to such Settlement Date.
"Limited Foreign Country" means any Included Foreign Country designated
as a "Limited Foreign Country" in a Limited Foreign Country Notice which (i) is
delivered by the Agent to the Seller at least three Business Days prior to the
effectiveness of such designation at any time on or after any date on which (A)
the long-term public senior debt securities of such Included Foreign Country
shall not have a rating by S&P and Moody's, respectively, at least as high as
the rating of such debt securities by S&P and Moody's, respectively, on the date
hereof or, if later, the date such Limited Foreign Country became an Included
Foreign Country hereunder, (B) the Agent shall have determined that the
Purchaser or other applicable Owner, as the case may be, does not have a valid
and perfected first priority ownership interest in any Subject Receivable owed
by any Obligor which is a resident of such Included Foreign Country enforceable
under the laws of such Included Foreign Country or the Agent shall have
determined
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that it, for the benefit of the Beneficiaries, does not have a valid and
perfected first priority security interest in such Subject Receivable, (C) any
of the Company's long-term public senior debt securities are not rated at least
BB+ by S&P and at least Bal by Moody's or, if such securities are not rated by
S&P and Moody's, any of such securities do not have a deemed rating of at least
BBB- and Baa3, as determined by the Agent in its sole discretion, (D) either S&P
or Moody's shall have requested such designation or (E) there shall have been a
material adverse change in the consolidated financial condition, or the
consolidated results of the operations of Maxtor and its subsidiaries since
December 30, 1996 except as and to the extent projected or otherwise disclosed
in Maxtor's quarterly reports on Form I0-Q for the fiscal quarters ending March
29, 1997, June 28, 1997 and September 27, 1997 or in Schedule V hereto, and (ii)
specifies the reason for such designation.
"Limited Foreign Country Limit" means, with respect to any Limited
Foreign Country, the lesser of (i) a limit (which may be zero), on the aggregate
Outstanding Balance of Subject Receivables which are Included Foreign
Receivables owed by Obligors which are residents of such Limited Foreign
Country, established pursuant to a Limited Foreign Country Notice and (ii) a
limit on the aggregate Outstanding Balance of Subject Receivables which are
Included Foreign Receivables owed by Obligors which are residents of Tier II
Foreign Countries equal to the product of: (a) the percentage referred to in
clause (a) of the definition of "Concentration Limit", multiplied by (b) the Net
Subject Receivables Balance as of such date.
"Limited Foreign Country Notice" means a written notice by the Agent to
the Seller delivered in accordance with the definition of Limited Foreign
Country with respect to any Included Foreign Country, establishing for such
Included Foreign Country a Limited Foreign Country Limit.
"Lock Box Account" has the meaning specified in Section 6.06(b).
"Lock Box Agreement" has the meaning specified in Section
6.06(b).
"Lock Box Bank" has the meaning specified in Section 6.06(b).
"Loss Horizon Ratio" means, as of any date, the fraction (i) the
numerator of which is the Outstanding Balance (measured for each Receivable at
the time of acquisition) of all Receivables acquired by the Seller during the
four Fiscal Months most recently ended on or before such date and (ii) the
denominator of which is the Outstanding Balance of all Eligible Receivables and
Included Foreign Receivables as of such date, provided that the "Loss Horizon
Ratio" with respect to any date prior to the Closing Date shall be set forth on
Schedule A to the Purchaser Report delivered Section 3.01(2).
"Loss Reserve" or "LR" means, on any date, an amount equal to:
LR = NSRB x LRP
where: NSRB = Net Subject Receivables Balance as of the
close of such Business Day
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<PAGE> 18
LRP = The Loss Reserve Percentage
as of the close of business of
the Collection Agent on such
date.
"Loss Reserve Percentage" means, as of any date, the greatest of (a)
10%, (b) four (4) times the percentage referred to in clause (a) of the
definition of "Concentration Limit" and (c) the Dynamic Loss Reserve Percentage.
"Loss-to-Liquidation Ratio" means, as of any date, the ratio (expressed
as a percentage) that is obtained 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 in accordance with
the Credit and Collection Policy, during the Fiscal Month most recently ended on
or before such date by (ii) the aggregate amount of Collections (other than any
deemed Collections) received during such Fiscal Month.
"Maxtor" has the meaning specified in Preliminary Statement 2 to this
Agreement.
"Maxtor Agreement" means an agreement in substantially the form of
Exhibit J hereto, duly executed and delivered by the parties thereto, as such
agreement may from time to time be amended, supplemented or otherwise modified
pursuant to the terms thereof and hereof.
"Moody's" means Moody's Investors Service, Inc., or any successor
thereof.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which the Seller, Maxtor or any Selling Affiliate or
any ERISA Affiliate of any thereof is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the
Seller, Maxtor or any Selling Affiliate or an ERISA Affiliate of any thereof and
at least one Person other than the Seller, Maxtor or any Selling Affiliate,
respectively, and its ERISA Affiliates or (ii) was so maintained and in respect
of which the Seller, Maxtor or any Selling Affiliate, respectively, or such an
ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the
event such plan has been or were to be terminated.
"Net Subject Receivables Balance" means, at any time, the excess of (i)
the Outstanding Balance of the Subject Receivables existing at such time which
are Eligible Receivables or Included Foreign Receivables over (ii) the sum of,
without duplication (A) the Outstanding Balance of such Subject Receivables that
have become Defaulted Receivables at such time, plus (B) the aggregate amount by
which the aggregate Outstanding Balance of all Subject Receivables owed by each
Obligor existing at such time exceeds the product of (1) the Concentration Limit
for such Obligor as of such date multiplied by (2) the Net Subject Receivables
Balance as of such date plus (C) the aggregate amount by which the aggregate
Outstanding Balance of all such Subject Receivables which are owed by Obligors
which are residents of a Tier II Foreign Country exceeds 10% of the Net Subject
Receivables Balance as of such date, plus (D) the
18
<PAGE> 19
aggregate amount by which the aggregate Outstanding Balance of all such Subject
Receivables which are Included Foreign Receivables owed by Obligors which are
residents of any Limited Foreign Country at such time therefor exceeds the
Limited Foreign Country Limit for such Limited Foreign Country, plus (E) the
aggregate amount by which the aggregate Outstanding Balance of all such Subject
Receivables which are Included Foreign Receivables exceeds 35% of the Net
Subject Receivables Balance as of such date, plus (F) the aggregate amount of
Collections deposited in the Concentration Account at such time for payment of
any Subject Receivable the Obligor of which has not been identified, plus (G)
the aggregate Outstanding Balance of all Subject Receivables in respect of which
any credit memo is outstanding and unapplied at such time, plus (H) the amount,
if any, by which (i) the aggregate Outstanding Balance of all Eligible
Receivables required to be paid in full within more than 60 days, but not more
than 90 days, of the original billing date therefor, exceeds (ii) 5% of the
aggregate Outstanding Balance of all Subject Receivables existing at such time.
As used in this definition, "Net Subject Receivables Balance" means the "Net
Subject Receivables Balance" as disclosed on the Daily Report.
"Obligor" means a Person (other than the Seller, Maxtor or any Selling
Affiliate) which is obligated to make payments pursuant to a Contract of the
type described in the definition of the term "Contract" contained in this
Section 1.01.
"Officer's Certificate" means a certificate signed by a Financial
Officer of the Seller or Collection Agent and delivered to the Trustee.
"Original Agreement" has the meaning specified in Preliminary Statement
2 to this Agreement.
"Outstanding Balance" of any Receivable at any time means the then
outstanding principal balance thereof.
"Owner" means, for each Purchased Interest, upon the making of the
Purchase thereof, the Purchaser; 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.
"Owner Collections" means, as of any date, that portion of the
Collections deposited to the Concentration Account on such date equal to the
product of (A) the Allocation Percentage on such date and (B) the aggregate
amount of such Collections.
"Participant" means, at any time for each Purchased Interest, each
Person which at such time shall have purchased from the Purchaser which
originally purchased such Purchased Interest or any successive Assignee thereof
an undivided interest in such Purchased Interest or shall have made a commitment
to the Agent to so purchase such an interest.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto performing similar functions.
19
<PAGE> 20
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Pool Non-compliance Date" means any day on which the Net Subject
Receivables Balance falls below the Required Net Subject Receivables Balance.
"Program Fee" has the meaning specified in Section 2.08.
"Purchase" means a purchase by the Purchaser of a Purchased Interest
from the Seller pursuant to Article II hereof.
"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.
"Purchase Documents" means this Agreement, the Repurchase Agreement, the
Assignments, the Receivables Contribution and Sale Agreement, each Selling
Affiliate Receivables Contribution and Sale Agreement, the Company/Maxtor
Agreement, the Company/Seller Agreement, the Maxtor Agreement, the Bank
Agreement, each Consent and Agreement and the Fee Letter, and the documents and
instruments delivered in connection herewith and therewith.
"Purchased Interest" means, at any time on any date, an undivided
percentage ownership interest at such time in (i) all then outstanding Subject
Receivables arising prior to the time of the most recent computation or
recomputation of such undivided percentage interest pursuant to Section 2.04,
(ii) all Related Security with respect to such Subject Receivables, (iii) all
Collections with respect to, and other proceeds of, such Subject Receivables and
Related Security and (iv) the Additional Assigned Rights. Such undivided
percentage interest shall be a fraction expressed as a percentage and shall be
computed as follows:
C +TR
-----
NSRB
where: C = the Capital of such Purchased Interest at the time of
computation.
TR = the Total Reserves with respect to such
Purchased Interest at the time of
computation.
NSRB = the Net Subject Receivables Balance at the
time of computation.
Each Purchased Interest shall be determined from time to time pursuant to the
provisions of Section 2.04, giving effect to the deposit of Owner Collections to
the Seller's Account as provided in Section 2.05.
20
<PAGE> 21
"Purchase Limit" means, with respect to the Bank Agreement and this
Agreement, in the aggregate, $150,000,000, as such amount may be reduced
pursuant to Section 2.03; provided, however, that on and as of the Closing Date
the Purchase Limit means, with respect to the Bank Agreement and this Agreement,
in the aggregate, $100,000,000, as such amount may be reduced pursuant to
Section 2.03, until all of the following conditions have been satisfied: (i) no
Event of Insecurity has occurred and is continuing, (ii) the Seller has provided
to the Agent all reports and information required to be provided by it under
this Agreement, including, without limitation, the Purchaser Report dated as of
the Closing Date (and all Purchaser Reports required to be provided thereafter)
and each Daily Report required hereunder, and such other reports and information
as the Agent may request, (iii) each of the documents referred to in Sections
3.01 (o), (p), (q) and (r) shall have been delivered to the Agent, in form and
substance satisfactory to it in its sole discretion, and (iv) all of the credit
facilities of Maxtor shall have been amended or any defaults thereunder waived
or cured all on terms satisfactory to the Agent in its sole discretion.
"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(c).
"Purchaser" has the meaning specified in the recital of parties to this
Agreement.
"Purchaser Fee" has the meaning specified in Section 2.08.
"Purchaser Rate" for any Interest Period for any Purchased Interest
means the CP Rate for such Interest Period; provided, however, that if any Owner
shall not, at any time and for any reason, fund its Purchase or maintenance of
such Purchased Interest for such Interest Period by issuing Commercial Paper
Notes, the "Purchaser Rate" for such Interest Period shall then be the Assignee
Rate for such Interest Period or such other rate as the Agent and the Seller
shall agree to in writing.
"Purchaser Report" means a report, in substantially the form of Exhibit
B hereto, furnished by the Collection Agent to the Agent and the Trustee for
each Owner pursuant to Section 2.06(e).
"Receivable" means the indebtedness of any Obligor under a Contract of
the type described in the definition of the term "Contract" arising from a sale
of merchandise or services by Maxtor 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), and includes the right to payment
of any interest or finance charges and other obligations of such Obligor with
respect thereto.
"Receivables Contribution and Sale Agreement" means a receivables
contribution and sale agreement in substantially the form of Exhibit H hereto,
entered into by Maxtor and the Seller, as amended, supplemented or otherwise
modified from time to time.
"Related Security" means with respect to any Receivable:
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<PAGE> 22
(i) all of the Seller's, Maxtor'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 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.
"Repurchase Agreement" has the meaning specified in Preliminary
Statement 3 to this Agreement.
"Required Net Subject Receivables Balance" means, as of any day of
determination, the sum of (i) the Total Reserves as of such day, plus (ii) the
aggregate Capital outstanding for all Purchased Interests on such day (computed
as if reduced by the aggregate amount of Cure Funds held in the Cure Account).
"Responsible Official" means, when used with respect to the Trustee, any
officer within the Corporate Trust Office of the Trustee including any Managing
Director, Vice President, Assistant Vice-President, Assistant Secretary,
Assistant Treasurer or any other officer of the Trustee who customarily performs
functions similar to those performed by any of the above designated Persons who
at the time shall be such officers, respectively, and also, with respect to a
particular matter, any other officer to whom any matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"Revolving Period" means the period beginning on the Closing Date and
terminating on the close of business on the Business Day immediately preceding
the Termination Date.
"Seller" has the meaning specified in the recital of parties to this
Agreement.
"Seller Assets" means all of the Seller's right, title and interest in,
to and under all Receivables, all Related Security with respect thereto, all
Collections with respect thereto, all the Seller's rights, remedies, powers and
privileges with respect to such Receivables and the related Contracts existing
at the close of business of Maxtor on the Closing Date and arising from time to
time thereafter, all Additional Assigned Rights of the Seller, and all proceeds
of each of the foregoing.
"Seller Collections" means, with respect to any date, that portion of
the Collections deposited to the Concentration Account equal to the product of
(i) 100% minus the Allocation Percentage on such date times (ii) the aggregate
amount of such Collections.
"Seller's Account" has the meaning specified in Section 2.02(c).
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<PAGE> 23
"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 Receivables Contribution and Sale, Agreement, the
Seller) shall have executed and delivered to the Agent a Selling Affiliate
Receivables Contribution and Sale 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 Section 3.01 relating to such Affiliate, such Selling
Affiliate Receivables Contribution and Sale Agreement, such Consent and
Agreement and the Seller and (ii) the consent of the Company to the addition of
such Affiliate as a "Selling Affiliate" hereunder and under the Bank Agreement,
an agreement substantially similar to the Company/Maxtor Agreement with respect
to such Affiliate and its Selling Affiliate Receivables Contribution and Sale
Agreement, and documents for the Company of the type described in Sections 3.01
(o), (p), (q) and (r) hereof and of the Bank Agreement and relating to such
consent.
"Selling Affiliate Receivables Contribution and Sale Agreement" means,
with respect to any Selling Affiliate, a receivables contribution and sale
agreement, substantially in the form of Exhibit H hereto, between the Seller and
such Selling Affiliate.
"Settlement Date" means the eighth Business Day of any calendar month.
"Settlement Period" for any Purchased Interest means (i) each period
commencing on the first day of a calendar month and ending on the last day of
such calendar month for such Purchased Interest; and, on and after the
Termination Date for such Purchased Interest, such period (including, without
limitation, a period of one day) as shall be selected from time to time by the
Agent or, in the absence of any such selection, each period of thirty (30) days
from the last day of the immediately preceding Settlement Period and (ii) in the
event Maxtor is no longer acting as Collection Agent, a period of one day.
"Single Employer Plan" means a single employer plan, as defined in
Section 4001 (a)(I 5) of ERISA, that (i) is maintained for employees of the
Seller or an ERISA Affiliate and no Person other than the Seller and its ERISA
Affiliates or (ii) was so maintained and in respect of which the Seller or an
ERISA Affiliate could have liability under Section 4069 of ERISA in the event
such plan has been or were to be terminated.
"S&P" means Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc., or any successor thereof.
"Subject Receivable" means, at any time, any Receivable in respect of
which the Obligor is a Designated Obligor at such time or was a Designated
Obligor on the date of Purchase of an interest therein hereunder other than any
such Receivable (x) which shall have been repurchased by the Seller as
contemplated by Section 2.05 (and in respect of which the Agent or any Owner has
not been required to return all or any portion of the payment received from the
Seller effecting such repurchase) 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
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<PAGE> 24
to Sections 2.05 and 2.06 (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).
"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.
"Tier I Foreign Country" means (i) Canada, the Federal Republic of
Germany, France or the United Kingdom or (ii) any other country or territory the
inclusion of which as a "Tier I Foreign Country" shall have been requested by
the Seller, and consented to by the Agent (in the Agent's sole discretion) in
writing.
"Tier II Foreign Country" means (i) Belgium, Denmark, Ireland Italy,
Japan, Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden or
Switzerland or (ii) any other country or territory the inclusion of which as a
"Tier II Foreign Country" shall have been requested by the Seller, and consented
to by the Agent (in the Agent's sole discretion) in writing, so long as any such
country or territory referred to in clauses (i) or (ii) is a "Limited Foreign
Country".
"Total Reserves" means, as of any date, the sum of the Loss Reserve, the
Dilution Reserve, the Yield/Fee Reserve and the Transfer Risk Reserve.
"Transfer Risk Reserve" or "TRR" means, on any date, an amount equal to:
TRR = NSRB x TRRP
where: NSRB = Net Subject Receivables Balance as of the
close of such Business Day
TRRP = The Transfer Risk Reserve Percentage, as
of the close of business of the Collection
Agent on such date.
"Transfer Risk Reserve Percentage" means, as of any date, the product of
(i) 6.8% (or such other percentage as shall be specified by the Agent in writing
from time to time), (ii) a fraction (a) the numerator of which is the
Outstanding Balance of all Included Foreign Receivables as of the last day of
the Fiscal Month most recently ended on or before such date and (b) the
denominator of which is the Outstanding Balance of all Receivables as of the
last day of the Fiscal Month most recently ended on or before such date and
(iii) the excess of (a) 100% over (b) the sum of (1) the Dynamic Loss Reserve
Percentage as of such date plus (2) the Dilution Reserve Percentage as of such
date.
"Trustee" has the meaning specified in the recital of parties to this
Agreement.
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<PAGE> 25
"Trustee's Account" has the meaning specified in Section 6.07.
"Trustee Accounts" has the meaning specified in Section 6.07(c).
"Trustee's Fee" has the meaning specified in Section 11.05.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the specified jurisdiction.
"United States" means the United States of America.
"Withdrawal Liability" has the meaning given such term under Part I of
Subtitle E of Title IV of ERISA.
"Yield" means with respect to any Purchased Interest for any Settlement
Date:
(i) if the Purchaser Rate for such Purchased Interest for the
immediately preceding Interest Period is the CP Rate:
PRxCxED
-------
360
(ii) if the Purchaser Rate for such Purchased Interest for the
immediately preceding Interest Period is the Assignee Rate:
ARxCxED
-------
360
where: PR = the Purchaser Rate for such Purchased
Interest for such Interest Period
AR = the Assignee Rate for such Purchased
Interest for such Interest Period
C = The average actual Capital outstanding
for such Purchased Interest for such
Interest Period
ED = the actual number of days elapsed during
such Interest Period
provided that no provision of this Agreement shall require the
payment or permit the collection of Yield in excess of the
maximum permitted by applicable law; and provided further that
Yield for any Purchased Interest shall not be considered paid by
any distribution to the extent that at any time all or a portion
of such distribution is rescinded or must otherwise be returned
for any reason.
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<PAGE> 26
"Yield/Fee Amount" means, with respect to any Purchased Interest
for any date, an amount equal to:
{[(AR - AS) x 1.3] + AS + PF) x C x D} + SF + TF
------------------------------------------------
360
where: AR = (a) If the Purchaser Rate for the
Interest Period during which such date
occurs is the CP Rate, AR is equal to
the Adjusted Eurodollar Rate for such
Interest Period (calculated as if in all
cases such Interest Period were equal to
a period of one month);
(b) If the Purchaser Rate for the Interest
Period during which such date occurs is
the Assignee Rate: (i) if the Assignee
Rate is based on the Alternate Base
Rate, AR is the Assignee Rate on the
date occurring two Business Days prior
to the first day of such Interest
Period; and (ii) if the Assignee Rate is
based on the Adjusted Eurodollar Rate,
AR is the Assignee Rate for such
Interest Period
AS = 1.00% or such other percentage specified
in the first sentence of the definition
of the Assignee Rate
PF = A percentage per annum equal to the per
annum rate of the Program Fee in effect
on the first day of the Settlement
Period during which such date occurs
C = The larger of (i) the actual aggregate
Capital for all outstanding Purchased
Interests on such date and (ii) the
largest Capital for all outstanding
Purchased Interests estimated in good
faith by the Seller for the Interest
Period during which such date occurs (in
both cases computed as if reduced
dollar-for-dollar by the amount of Cure
Funds held in the Cure Account at such
time)
D = The actual number of days in the
applicable Settlement Period.
SF = An amount equal to the Collection Agent
Fee paid for the mostly recently ended
Settlement Period
TF = An amount equal to the aggregate of all
other fees and expenses paid for the
most recently ended Settlement Period
other than SF and PF
"Yield/Fee Reserve" means, on any date, an amount equal to:
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<PAGE> 27
YFR = C x YFRP
Where: C = The larger of (i) the actual aggregate
Capital for all outstanding Purchased
Interests on such date and (ii) the
largest Capital for all outstanding
Purchased Interests estimated in good
faith by the Seller for the Interest
Period during which such date occurs (in
both cases computed as if reduced
dollar-for-dollar by the amount of Cure
funds held in the Cure Account at such
time)
YFRP = The Yield/Fee Reserve Percentage as of
the close of business of the Collection
Agent on such date.
"Yield/Fee Reserve Percentage" means, as of any date, a percentage equal
to:
([AR - AS) x 1.3] + AS + PF + RSF + TF) x POP
---------------------------------------------
1-(LRP + DRP)
where: AR = (a) if the Purchaser Rate for the
Interest Period during which such date
occurs is the CP Rate, AR is equal to
the Adjusted Eurodollar Rate for such
Interest Period (calculated as if in all
cases such Interest Period (calculated
as if in all cases such Interest Period
were equal to a period of one month);
(b) If the Purchaser Rate for the
Interest Period during which such date
occurs is the Assignee Rate (i) if the
Assignee Rate is based on the Alternate
Base Rate, AR is the Assignee Rate on
the date occurring two Business Days
prior to the first day of such Interest
Period, and (ii) if the Assignee Rate is
based on the Adjusted Eurodollar Rate,
AR is the Assignee Rate for such
Interest Period.
AS = 1.00% or such other percentage
specified in the first sentence of the
definition of the Assignee Rate
PF = A percentage per annum equal to
the per annum rate of the Program
Fee in effect on the first day of
the Settlement Period during which
such date occurs
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<PAGE> 28
RSF = 1.00% or such other percentage as the
Agent may from time to time reasonably
determine reflects the fee payable to a
successor Collection Agent
TF = A percentage fee equal to 0.01% or such
other percentage as the Agent may from
time to time reasonably determine
reflects the fees and expenses of the
Trustee
POP = A percentage equal to the quotient of
(a) the sum of (i) the Collection Delay
Period plus (ii) the Average Maturity on
such date divided by (b) 360 days
LRP = A percentage equal to the Loss Reserve
Percentage as of such date
DRP = A percentage equal to the Dilution
Reserve Percentage as of such date
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 mean "to but excluding".
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 2.01. Facility. On the terms and conditions hereinafter
set forth, the Purchaser may, in its sole discretion, make Purchases from time
to time on any Purchase Date during the period from the date hereof to the
Termination Date. Under no circumstances shall the Purchaser make any Purchase
if after giving effect to such Purchase, the aggregate Capital with respect to
all Purchased Interests, together with the aggregate "Capital" with respect to
all "Purchased Interests" under the Bank Agreement, would exceed the Purchase
Limit. Nothing in this Agreement shall be deemed to be or construed as a
commitment by the Purchaser to purchase any Purchased Interest at any time.
Under no circumstances shall the Purchaser make any Purchase, other than the
Purchase made on the Closing Date, until April 20, 1998.
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<PAGE> 29
SECTION 2.02. Making Purchases. (a) Each Purchase shall be made
(x) if the Purchase Price thereof is less than $20,000,000, on notice from the
Seller to the Agent by 11:00 a.m. (New York City time) on the relevant Purchase
Date, and (y) if the Purchase Price thereof equals or exceeds $20,000,000, on
notice from the Seller to the Agent by 11:00 a.m. (New York City time) one
Business Day prior the relevant Purchase Date. Each such notice of a proposed
Purchase shall specify (i) the desired Purchase Price to be paid to the Seller
(which shall be in a minimum amount of $2,000,000 or an integral multiple of $
100,000 in excess thereof), and (ii) the desired Purchase Date (which date shall
be a Business Day). The Purchaser shall promptly notify the Agent, and the Agent
shall promptly thereafter notify the Seller, whether the Purchaser has
determined to make such Purchase.
(b) If the Purchaser determines not to make the requested
Purchase, the Seller may send notice of the requested Purchase to the Agent
under the Bank Agreement, which notice shall be by telecopier, telex or cable
and shall comply with Section 2.02 of the Bank Agreement.
(c) On the date of each Purchase, the Purchaser shall, upon
satisfaction of the applicable conditions set forth in Article III, make
available to the Agent the Purchase Price for such Purchase by deposit of such
amount in same day funds to the Agent's Account. After receipt by the Agent of
such funds, the Agent will cause such funds to be made immediately available
(and in any event, if the Agent shall have received such funds by 2:00 p.m. (New
York City time) on any Business Day, no later than 5:00 p.m. (New York City
time) on such Business Day) to the Seller at Bank of America, ABA: 121000358,
Beneficiary: Maxtor Receivables Corporation, Account: 1233-3-27501 (the
"Seller's Account").
SECTION 2.03. Termination or Reduction of the Purchase Limit. (a)
Optional. The Seller may, upon at least five Business Days' notice to the Agent,
terminate in whole or reduce in part the unused portion of the Purchase Limit;
provided, however that for purposes of this Section 2.03(a), the unused portion
of the Purchase Limit shall be computed as the excess of (i) the Purchase Limit
immediately prior to giving effect to such termination or reduction over (ii)
the sum of (A) the aggregate Capital with respect to all Purchased Interests
outstanding at the time of such computation and (B) the aggregate "Capital" with
respect to all "Purchased Interests" outstanding at the time of such computation
under the Bank Agreement; provided further that each partial reduction shall be
in an amount equal to $5,000,000 or an integral multiple thereof.
(b) Mandatory. On each day on which the Seller shall, pursuant to
Section 2.03(a) of the Bank Agreement, reduce in part the unused portion of the
"Purchase Limit" under and as defined in the Bank Agreement, the Purchase Limit
hereunder shall automatically reduce by an equal amount. The Purchase Limit
hereunder shall automatically terminate in whole on any day on which the Seller
shall terminate in whole the Purchase Limit under and as defined in the Bank
Agreement pursuant to Section 2.03(a) of the Bank Agreement.
SECTION 2.04. Purchased Interest. Each Purchased Interest shall
be initially computed as of the opening of business of the Collection Agent on
the date of purchase of such Purchased Interest. Thereafter until the
Termination Date, such Purchased Interest shall be
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automatically recomputed as of the close of business of the Collection Agent on
each day (giving effect to the deposit of Owner Collections to the Seller's
Account pursuant to Section 2.05). Such Purchased Interest shall remain constant
from the time as of which any such computation or recomputation is made until
the time as of which the next such recomputations if any, shall be made. Any
Purchased Interest, as computed as of the day immediately preceding the
Termination Date, shall remain constant at all times on and after such
Termination Date.
SECTION 2.05. Settlement Procedures. (a) On each Deposit Date
during each Settlement Period during the Revolving Period, unless a Cure Period
shall have occurred and be continuing, the Collection Agent shall instruct the
Trustee by a Daily Report delivered to the Trustee by 2:00 p.m. (New York City
time) to, and the Trustee shall, at such time and in the following order:
(i) allocate Collections received since receipt of the last such Daily
Report and held in the Concentration Account on such day, based on the Daily
Report, either as Owner Collections or Seller Collections;
(ii) out of such Owner Collections, allocate to, and hold in the
Concentration Account, in trust for the Owners, the Trustee and the Collection
Agent, an amount equal to the Yield/Fee Amount for such Deposit Date to the
extent such amount has not been previously so allocated;
(iii) deposit the remainder of such Owner Collections to the Seller's
Account, provided that, if immediately following any such deposit such Deposit
Date would be a Pool Non-compliance Date, the Trustee shall retain all such
remaining Owner Collections in the Concentration Account to be applied pursuant
to Section 2.05(b)(iii); and
(iv) deposit to the Seller's Account the Seller Collections.
On the Business Day immediately prior to each Settlement Date during the
Revolving Period, unless a Cure Period shall have occurred and be continuing,
the Collection Agent shall direct the Trustee in writing to deposit to the
Trustee's Account the amounts allocated and held in trust as described in clause
(ii) above; provided, however, that the portion of such deposit allocable to the
Trustee's expenses shall only be in an amount equal to the expenses reimbursable
under the Purchase Documents actually incurred by the Trustee (as certified in
reasonable detail to the Collection Agent in writing by the Trustee) during the
current Interest Period or remaining unpaid with respect to any prior Interest
Period. The Daily Report delivered by the Collection Agent to the Trustee on the
first day of each Interest Period shall set forth the Yield/Fee Amount for such
Settlement Date.
(b) On each Deposit Date during each Settlement Period if and so
long as a Cure Period shall have occurred and be continuing, the Collection
Agent shall instruct the Trustee by a Daily Report delivered to the Trustee by
2:00 p.m. (New York City time) to, and the Trustee shall, at that time and in
the following order:
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(i) allocate Collections received since receipt of the last such Daily
Report and held in the Concentration Account on such day, based on the Daily
Report, either as Owner Collections or Seller Collections;
(ii) out of Owner Collections, allocate to, and hold in the
Concentration Account, in trust for the Owners, the Trustee and the Collection
Agent, an amount equal to the Yield/Fee Amount for such date to the extent such
amount has not been previously so allocated;
(iii) deposit, out of the remainder of such Owner Collections, to the
Cure Account in an amount sufficient to make the Net Subject Receivables Balance
equal or exceed the Required Net Subject Receivables Balance;
(iv) deposit the remainder of such Owner Collections to the Seller's
Account; provided that, if immediately following any such deposit such Deposit
Date would be a Pool Non-compliance Date, the Trustee shall retain all such
remaining Owner Collections in the Concentration Account to be applied pursuant
to Section 2.05(b)(iii); and
(v) deposit to the Seller's Account the Seller Collections.
On the Business Day immediately prior to each Settlement Date
during a Cure Period, the Collection Agent shall direct the Trustee in writing
to deposit to the Trustee's Account the amounts allocated and held in trust as
described in clause (iii) of this Section 2.05(b).
On each Business Day during each Settlement Period, if and so
long as a Cure Period shall have occurred and be continuing, the Collection
Agent shall direct the Trustee in writing to deposit to the Trustee's Account
the amounts allocated and held in trust as described in clause (ii) above;
provided, however, that the portion of such deposit allocable to the Trustee's
expenses shall only be in an amount equal to the expenses reimbursable under the
Purchase Documents actually incurred by the Trustee (as certified in reasonable
detail to the Collection Agent in writing by the Trustee) during the current
Interest Period or remaining unpaid with respect to any prior Interest Period.
The Daily Report delivered by the Collection Agent to the Trustee on the first
day of each Interest Period shall set forth the Yield/Fee Amount for such
Settlement Date.
(c) On each Deposit Date during the Amortization Period, the
Collection Agent shall instruct the Trustee by a Daily Report delivered to the
Trustee by 2:00 p.m. (New York City time) to, and the Trustee shall, at that
time and in the following order:
(i) allocate Collections received since receipt of the last such Daily
Report and held in the Concentration Account, based on the Daily Report, either
as Owner Collections or as Seller Collections;
(ii) set aside and hold in the Concentration Account, in trust for the
Owners, the Trustee and the Collection Agent, such Owner Collections; and
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(iii) deposit to the Seller's Account the Seller Collections.
On the Business Day immediately prior to each Settlement Date
during an Amortization Period, the Trustee shall deposit to the Trustee's
Account (A) all amounts set aside as described in clause (ii) of this Section
2.05(c) and (B) the amount of Cure Funds on deposit in the Cure Account.
(d) On any Business Day during the Revolving Period, unless a
Cure Period shall have occurred and be continuing, the Seller may instruct the
Collection Agent to direct the Trustee (as set forth in the Daily Report) to
deposit to the Trustee's Account all or a portion of (A) the Collections
otherwise to be deposited into the Seller's Account pursuant to Sections
2.05(a)(iii) and (iv) and (B) the Yield/Fee Amount held in the Concentration
Account pursuant to Section 2.05(a)(ii).
(e) On any Business Day during the Revolving Period, the Seller
may instruct the Trustee by an Officer's Certificate (which may be a standing
instruction) delivered to the Trustee by 2:00 p.m. (New York City time) to, and
the Trustee shall, transfer to the Seller's Account Cure Funds, if any, held in
the Cure Account; provided that the Seller shall have delivered to the Trustee
at the time of such request an Officer's Certificate stating that, after taking
account of the requested withdrawal, the Net Subject Receivables Balance on such
day is equal to or greater than the Required Net Subject Receivables Balance and
setting forth the calculation supporting such statement.
(f) If on any day the Outstanding Balance of any Subject
Receivable is either (i) reduced as a result of any defective, rejected or
returned merchandise or services, any cash discount, or any adjustment by the
Seller, Maxtor or any Selling Affiliate or any Affiliate of any thereof, or (ii)
reduced or canceled as a result of any dispute or claim, or any setoff in
respect of any dispute or claim, by the Obligor thereof against the Seller,
Maxtor or any Selling Affiliate or any Affiliate of any thereof (whether such
dispute or claim arises out of the same or a related transaction or an unrelated
transaction), the Seller shall be deemed to have received on such day a
Collection of such Receivable in the amount of such reduction or cancellation
(unless such Seller shall be deemed to have received on such day a collection in
full of such Subject Receivable pursuant to the succeeding sentence), and the
Seller shall make the payment required to be made by it in connection with such
deemed Collection on the day required under, and otherwise pursuant to, Section
5.01(h). If on any day any of the representations or warranties in Section 4. 01
(h) is violated with respect to any Subject Receivable, the Seller shall be
deemed to have received on such day a Collection in full of such Subject
Receivable and shall make the payment required to be made by it in connection
with such deemed Collection on the day required under, and otherwise pursuant
to, Section 5.01 (h). In the case of each of the two preceding sentences, upon
any actual payment in full by the Seller of any such Receivable, the Seller
shall be deemed to have repurchased (without recourse and without representation
or warranty, express or implied) such Receivable and such Receivable shall cease
to be a "Subject Receivable" for purposes of this Agreement (unless and until
the Agent or any Owner is at any time required to return all or any portion of
such payment for any reason).
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(g) Except as otherwise stated in this Section 2.05 or as
otherwise required by law or the underlying contract or the applicable Credit
and Collection Policy, all Collections received from an Obligor of any
Receivable shall be applied to Receivables then outstanding of such Obligor in
the order of the age of such Receivables, starting with the oldest such
Receivable unless such Obligor designated its payment for application to
specific Receivables, and, in any case, no later than ten Business Days after
such payment shall have been made by such Obligor.
SECTION 2.06. Distributions. (a) During the Revolving Period, on
each Settlement Date, the Trustee shall distribute the funds on deposit in the
Trustee's Account on such Settlement Date, in the following order of priority,
in accordance with the Purchaser Report:
(i) to the Trustee as the accrued and unpaid Trustee's Fee and
reasonable expenses of the Trustee reimbursable under the Purchase Documents, in
an amount not in excess of $1,000 for such Settlement Date;
(ii) to the Agent's Account for the Collection Agent for the accrued and
unpaid Collection Agent Fee;
(iii) unless otherwise instructed by the Agent, to the Agent's Account:
(A) for payment of the fees and any other amounts due under the
Fee Letter other than Breakage Costs; and
(B) for distribution to each Owner by the Agent, ratably in
accordance with such Owner's Purchased Interest, for payment of Yield on such
Purchased Interest;
(iv) to the Trustee as Trustee's expenses reimbursable under the
Purchase Documents in excess of $1,000 for such Settlement Date;
(v) unless otherwise instructed by the Agent, to the Agent's Account for
payment of Breakage Costs;
(vi) to the Agent's Account for the Owners, the Banks and the Agent for
payment of any other amounts (other than Capital) due thereto under any of the
Purchase Documents;
(vii) to the Concentration Account, amounts required to be allocated to
the Yield/Fee Amount for the immediately succeeding Settlement Date; and
(viii) after the payment in full of the amounts specified in clauses (i)
through (vii) above, to the Seller.
(b) On each Settlement Date during the Amortization Period, the
Trustee shall distribute the funds on deposit in the Trustee's Account on such
Settlement Date, in the following order of priority, in accordance with the
Purchaser Report:
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(i) to the Trustee as the accrued and unpaid Trustee's Fee and
reasonable expenses of the Trustee reimbursable under the Purchase Documents, in
an amount not in excess of $ 1,000 for such Settlement Date;
(ii) to the Agent's Account for the Collection Agent as the accrued and
unpaid Collection Agent Fee;
(iii) unless otherwise instructed by the Agent, to the Agent's Account:
(A) for payment of the fees and any other amounts due under the
Fee Letter other than Breakage Costs; and
(B) for distribution to each Owner by the Agent, ratably in
accordance with such Owner's Purchased Interest, for payment of Yield on such
Purchased Interest;
(iv) to the Agent's Account for each Owner, ratably in accordance with
such Owner's Purchased Interest, in reduction of the Capital for such Purchased
Interest until such Capital is reduced to zero;
(v) to the Trustee as Trustee's expenses reimbursable under the Purchase
Documents in excess of $1,000 for such Settlement Date;
(vi) unless otherwise instructed by the Agent, to the Agent's Account
for payment of Breakage Costs;
(vii) to the Agent's Account for the Owners and the Agent for payment of
any other amounts due the Owners and the Agent under the Purchase Documents;
(viii) after the payment in full of the amounts specified in clauses (i)
through (vii) above, to the Seller.
(c) In accordance with the provisions of Section 2.05(d), on each
Settlement Date the Trustee shall distribute the funds on deposit in the
Trustee's Account to the Agent's Account, unless otherwise instructed by the
Agent in writing, in reduction of any Capital and any payment of Yield, any
Breakage Costs and any other amounts due the Owners under the Purchase Documents
in respect of any Purchased Interest.
(d) Pursuant to Section 2.05(b), on each Settlement Date the
Trustee shall distribute the amounts withdrawn from the Cure Account under
Section 2.05(b), that have been deposited to the Trustee's Account, promptly
upon receipt thereof, to the Agent's Account for distribution to each Owner,
ratably in accordance with such Owner's Purchased Interest, in reduction of the
Capital for such Purchased Interest, unless otherwise instructed by the Agent in
writing.
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Upon payment in full to all of the Owners of the aggregate
Capital for all Purchased Interests outstanding, all accrued and unpaid Yield
thereon and all other amounts due the Owners and the Agent under the Purchase
Documents, payment in full to the Collection Agent of the Collection Agent Fee,
and payment in full to the Trustee of the Trustee's Fee and all reasonable
expenses of the Trustee reimbursable under the Purchase Documents, all amounts
remaining on deposit in the Trustee's Account and the Cure Account shall be
distributed by the Trustee to the Seller, and all amounts, if any, remaining in
the Lock Box Accounts and the Concentration Account shall be distributed by the
Agent to the Seller; provided, however, that if at any time after the payment
that would have otherwise resulted in such payment in full, such payment is
rescinded or must otherwise be returned for any reason, effective upon such
rescission or return, such payment in full shall automatically be deemed, as
between the Owners and the Seller, never to have occurred, and the Seller shall
be required, to the extent it received any amounts under this Section 2.06, to
remit to the Trustee an amount equal to the rescinded or returned payment.
(e) Prior to the 6th Business Day of each calendar month, the
Collection Agent shall prepare and forward to the Agent and the Trustee for each
Owner of a Purchased Interest (A) a Purchaser Report relating to such Purchased
Interest, as of the close of business of the Collection Agent on the last day of
the immediately preceding month, and (B) an analysis as to the aging of all
Subject Receivables, as of such last day.
(f) On each Business Day, by. no later than 2:00 p.m. (New York
City time), the Collection Agent shall prepare and forward to the Agent for each
Owner of a Purchased Interest and the Trustee, a Daily Report relating to such
Purchased Interest.
SECTION 2.07. Payments and Computations, Etc. All amounts to be
paid or deposited by the Seller, the Collection Agent or the Trustee hereunder
shall be paid or deposited in accordance with the terms hereof no later than
4:00 p.m. (New York City time) on the day when due in lawful money of the United
States of America in same day funds to the Agent's Account. The Seller shall, to
the extent permitted by law, pay to the Agent interest on all amounts not paid
or deposited when due hereunder at 1% per annum above the Alternate Base Rate in
effect from time to time, payable on demand, provided, however, that such
interest rate shall not at any time exceed the maximum rate permitted by
applicable law. Such interest shall be retained by the Agent except to the
extent that such failure to make a timely payment or deposit has continued
beyond the date for distribution by the Agent of such overdue amount to an Owner
of a Purchased Interest, in which case such interest accruing after such date
shall be for the account of, and distributed by the Agent to, such Owner. All
computations of interest and fees hereunder shall be made on the basis of a year
of 360 days for the actual number of days (including the first but excluding the
last day) elapsed.
SECTION 2.08. Fees. (a) The Seller shall pay the following fees:
(i) to the Agent, in consideration for the support of the Purchased
Interests purchased hereunder, a fee (the "Program Fee") as set forth in the Fee
Letter;
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(ii) to the Agent for the account of the Purchaser a fee (the "Purchaser
Fee") as set forth in the Fee Letter; and
(iii) to the Agent for the account of the Banks and the Participants
(the "Facility Fee") as set forth in the Fee Letter.
(b) The Seller shall also pay to the Agent for the account of the
Agent a fee (the "Arrangement Fee") as set forth in the Fee Letter, payable on
the date of execution of this Agreement.
(c) Each Owner shall pay to the Collection Agent a collection fee
(the "Collection Agent Fee"), from the Closing Date until the Collection Date,
payable on each Settlement Date, in an amount equal to the greater of (i) 0.25
of 1% per annum on the average daily amount of Capital for each Purchased
Interest owned by such Owner, or (ii) 110% of the reasonable out-of-pocket costs
and expenses of the Collection Agent of servicing, administering and collecting
such Owner's ratable share of the Subject Receivables if and to the extent that
such costs and expenses are specified in reasonable detail, including copies of
supporting documentation, in a writing delivered to the Agent no later than
three Business Days prior to such Settlement Date.
SECTION 2.09. Eurodollar Increased Costs. (a) If any Owner shall
be subject to any Eurodollar Increased Costs, then, upon demand by such Owner
(with a copy to the Agent), the Seller shall immediately pay to the Agent, for
the account of such Owner (as a third-party beneficiary), from time to time as
specified, additional amounts sufficient to compensate such Owner for such
Eurodollar Increased Costs. A certificate as to such amounts submitted to the
Seller and the Agent shall be conclusive and binding for all purposes, absent
manifest error.
(b) If any Owner shall, pursuant to Section 2.09(a), make a
demand for compensation for Eurodollar Increased Costs, the Seller shall have
the right, upon at least thirty (3 0) days' prior written notice to such Owner
(with a copy to the Agent), to cause such Owner to use its best efforts to
assign to an Assignee selected by the Seller and consented to in writing by the
Agent (which consent shall not be unreasonably withheld) the Purchased Interests
of such Owner and its rights in respect thereof, all in accordance with Section
9.01; provided that no action taken under this subsection (b) shall affect the
Seller's obligation to compensate any such Owner for Eurodollar Increased Costs
for the period prior to the effectiveness of such assignment.
ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01. Condition Precedent to Initial Purchase. The
initial Purchase hereunder is subject to the condition precedent that (without
the satisfaction of such condition precedent imposing any obligation on the
Purchaser) the Agent shall have received on or before
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the Purchase Date for such Purchase, the following, each (unless otherwise
indicated) dated, or dated as of, such Purchase Date, in form and substance
satisfactory to the Agent:
(a) The initial Assignment, duly executed by the Seller, dated the date
hereof.
(b) The Receivables Contribution and Sale Agreement, duly executed by
the Seller and Maxtor, and acknowledged by the Agent, together with:
(i) Stamped receipt copies of proper financing statements naming
Maxtor as seller, the Seller as purchaser and CNAI, as Agent and as assignee,
together with evidence reasonably satisfactory to the Agent of the due filing
thereof on or before the Closing Date, under the UCC of all jurisdictions that
the Agent may deem necessary or desirable in order to perfect the Seller's
interests created or purported to be created by the Receivables Contribution and
Sale Agreement and the Agent's interests created or purported to be created by
this Agreement;
(ii) Proper financing statements, if any, necessary to release
all security interests and other rights of any Person in the Seller Assets
previously granted by Maxtor;
(iii) [Intentionally left blank]
(iv) The Maxtor Agreement, duly executed by Maxtor.
(c) Certified copies of the charter and by-laws, as amended, of each of
the Seller and Maxtor.
(d) Certified copies of the resolutions of the Boa rd of Directors of
each of the Seller and Maxtor approving this Agreement and the other Purchase
Documents to be delivered by the Seller and Maxtor respectively, hereunder and
the transactions contemplated hereby and thereby, and of all documents
evidencing other necessary corporate action and governmental approvals, if any,
with respect to such Purchase Documents. Documented evidence, in form and
substance satisfactory to the Agent, of all requisite corporate action having
been taken by the Trustee to approve and authorize the execution and delivery by
the Trustee of each of the Purchase Documents to which it is party and
performance of its obligations thereunder.
(e) A certificate of the Secretary or Assistant Secretary (or, in the
case of the Trustee, an Assistant Treasurer) of each of the Seller, Maxtor and
the Trustee certifying the names and true signatures of the officers of the
Seller, Maxtor and the Trustee, respectively, authorized to sign this Agreement
and the other Purchase Documents to be delivered by it hereunder.
(f) Good standing certificates issued by the Secretary of State of the
jurisdictions of incorporation of each of the Seller and Maxtor, respectively.
(g) Stamped receipt copies of proper financing statements, duly filed
with respect to all Seller Assets, on or before the Closing Date under the UCC
of all jurisdictions that the Agent may deem necessary or desirable in order to
perfect the sales and transfers of legal and equitable title, and ownership
interests, or the grant of a security interest therein, contemplated hereby.
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(h) Proper financing statements, if any, necessary to release all
security interests and other rights of any Person in the Seller Assets,
previously granted by the Seller.
(i) [Intentionally left blank].
(j) Lock Box Agreements duly executed by the Lock Box Banks, the Agent
and the Seller.
(k) A favorable opinion of Morrison & Foerster LLP, counsel for the
Seller and Maxtor, substantially in the form of Exhibit E-I hereto, which shall
include, without limitation, (A) an opinion as to perfection, (B) an opinion as
to enforceability, (C) a general corporate opinion and (D) such other matters as
the Agent may reasonably request.
(1) A favorable opinion of Morrison & Foerster LLP, counsel for the
Seller and Maxtor, substantially in the Form of Exhibit E-2 hereto, which shall
include (A) a "true sale" opinion with respect to the sales of Receivables from
Maxtor to the Seller, (B) an opinion relating to the likelihood of a substantive
consolidation of Maxtor with the Seller and (C) such other matters as the Agent
may reasonably request.
(m) A favorable opinion of Glenn Stevens, in-house counsel for the
Seller, substantially in the form of Exhibit E-3 hereto, as to such matters as
the Agent may reasonably request.
(n) A letter of the Seller to the Purchaser, Citibank and CNAI,
individually and as the Agent, substantially in the form of Exhibit F hereto.
(o) The Company/Maxtor Agreement and the Company/Seller Agreement, each
duly executed by the Company.
(p) Certified copies of the resolutions of the Board of Directors of the
Company approving the Company/Maxtor Agreement and the Company/Seller Agreement
and the other Purchase Documents to be delivered by it hereunder and the
transactions contemplated thereby, and of all documents evidencing other
necessary corporate action and governmental approvals, if any, with respect to
such Purchase Documents.
(q) A certificate of a Representative Director of the Company certifying
the names and true signatures of the officers of the Company authorized to sign
the Purchase Documents to be delivered by it hereunder.
(r) Favorable opinions of Kim & Chang, counsel for the Company, and
special Korean in-house counsel for the Company, substantially in the forms of
Exhibits G-I and G-2, respectively, hereto and as to such other matters as the
Agent may reasonably request.
(s) The Bank Agreement, duly executed by each of the parties thereto.
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(t) The Fee Letter, in form and substance satisfactory to the Agent,
duly executed by the Seller.
(u) Evidence that all bank accounts required to be established and
maintained under the Purchase Documents shall have been established.
(v) The Repurchase Agreement and each other Purchase Document, duly
executed by each party thereto.
(w) Evidence that all related fees and expenses then due and payable in
connection with the Purchase Documents have been paid.
(x) The Daily Report, in form and substance satisfactory to the Agent
and the Trustee, prepared on a pro forma basis and showing that the Seller is in
compliance with all the Purchase Documents (after giving effect to the initial
Purchase), to the extent a showing of such compliance is called for in the form
thereof.
(y) An accounts receivable trial balance as of the initial Purchase Date
(which if, in magnetic tape or diskette format, shall be compatible with the
Seller's, or, if applicable, the Collection Agent's equipment).
(z) A completed Purchaser Report, together with historical Receivables
portfolio data attached thereto as Schedule A, in each case in form and
substance satisfactory to the Agent and the Trustee.
(aa) A favorable opinion of Seward & Kissel, counsel for the Trustee,
in form and substance satisfactory to the Agent.
(bb) A favorable opinion of Shearman & Sterling, counsel for the Agent,
as to such matters as the Agent may reasonably request.
SECTION 3.02. Conditions Precedent to All Purchases and Deposits.
Each Purchase (including the initial Purchase) hereunder pursuant to Section
2.02 and each deposit of Owner Collections to the Seller's Account shall be
subject to the conditions precedent set forth in Section 3.01 and to the further
conditions precedent that (a) the Collection Agent shall have delivered to the
Agent, in form and substance satisfactory to the Agent, (i) all Purchaser
Reports and Daily Reports, as and when due under Section 2.06, and (ii) such
additional information as may be reasonably requested by the Agent, (b) on the
date of each such Purchase or deposit of Owner Collections to the Seller's
Account the following statements shall be true (and the acceptance by the Seller
of the proceeds of such Purchase or deposit shall constitute a representation
and warranty by the Seller that on such date in the case of each Purchase such
statements are true):
(i) The representations and warranties contained in this Agreement and
each other Purchase Document are correct on and as of the date of such Purchase,
before and after giving
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effect to such Purchase and to the application of the proceeds therefrom, as
though made on and as of such date,
(ii) No event has occurred and is continuing, or would result from such
Purchase or from the application of the proceeds therefrom, which constitutes an
Event of Termination or Incipient Event of Termination,
(iii) The Agent shall not have delivered to the Seller a notice that the
Purchaser shall not make any further Purchases hereunder and/or any deposits of
Owner Collections to the Seller's Account hereunder,
(iv) On such date, all of the Company's long-term public senior debt
securities are rated at least B- by S&P and at least B3 by Moody's or, if such
securities are not rated by S&P and Moody's, such securities have a deemed
rating of at least B- and B3, as determined by the Agent in its sole discretion,
(v) The Net Subject Receivables Balance is at least equal to Required
Net Subject Receivables Balance, and
(vi) The Agent shall not have received any notification from S&P or
Moody's that the transactions contemplated and effected by the Purchase
Documents are not of a type which it is desirable for the Purchaser to
consummate;
(c) the Bank Agreement shall be in form and substance satisfactory to the Agent
and shall be in full force and effect and (d) the Agent shall have received such
other approvals, opinions or documents as the Agent may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller. The
Seller represents and warrants, as of the date hereof and as of the date of each
Purchase hereunder and each "Sale" under the Receivables Contribution and Sale
Agreement and each Selling Affiliate Receivables Contribution and Sale
Agreement, as follows:
(a) The Seller is a corporation duly incorporated, validly existing and
in good standing under the laws of the jurisdiction indicated at the beginning
of this Agreement.
(b) The execution, delivery and performance by the Seller of each
Purchase Document to be delivered by it hereunder and the transactions
contemplated hereby and thereby, and the Seller's use of the proceeds of
Purchases and deposits to the Seller's Account, are within the Seller's
corporate powers, have been duly authorized by all necessary corporate action,
do not contravene (i) the Seller's charter or by-laws or (ii) any law or
Contract or other contractual restriction binding on or affecting the Seller,
and do not result in or require the creation of any
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Adverse Claim (other than pursuant hereto) upon or with respect to any of its
properties; and no transaction contemplated hereby requires compliance with any
bulk sales act or similar law.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or other Person is
required for the due execution, delivery and performance by the Seller of any
Purchase Document to be delivered by it hereunder or thereunder, or for the
perfection of or the exercise by the Agent or any Owner of its rights and
remedies under each such Purchase Document, except for (i) the filings of the
financing statements referred to in Article III, all of which, on or prior to
the Closing Date, will have been duly made and be in full force and effect, and
(ii) upon any Person's becoming a Selling Affiliate hereunder, the filings of
the financing statements required pursuant to the definition of the term
"Selling Affiliate", all of which, on or prior to the date such Person shall
become a Selling Affiliate, will have been duly made and be in full force and
effect.
(d) Each Purchase Document is, or when delivered hereunder will be, the
legal, valid and binding obligation of the Seller, enforceable against the
Seller in accordance with its respective terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally and except as such
enforceability may be limited by general principles of equity, whether
considered in a suit in law or in equity). Each Assignment, when delivered
hereunder, will evidence the transfer to the Purchaser of legal and equitable
title to, and ownership of, an undivided percentage ownership interest in the
Seller Assets, or a valid and perfected first priority security interest
therein.
(e) The consolidated pro-forma balance sheet of the Seller as at the
Closing Date, copies of which have been furnished to the Agent, fairly presents
the consolidated pro-forma financial condition of the Seller as at such date
after giving effect to the transactions contemplated to take place on the date
hereof pursuant to the Purchase Documents, all in accordance with generally
accepted accounting principles consistently applied.
(f) There is no pending or threatened action or proceeding affecting the
Seller, Maxtor or any Selling Affiliate or any of their subsidiaries before any
court, governmental agency or arbitrator which may materially adversely affect
(i) the collectibility of the Subject Receivables or the ability of Maxtor, the
Seller, any Selling Affiliate or the Collection Agent to collect Subject
Receivables or (ii) the ability of Maxtor, the Seller or any Selling Affiliate
to perform its obligations under any Purchase Document to be delivered by it
hereunder, or which purports to affect the legality, validity or enforceability
of any Purchase Document.
(g) No proceeds of any Purchase or deposit to the Seller's Account
(other than the proceeds of Seller Collections) will be used to purchase or
carry any margin stock (within the meaning of Regulation U issued by the Board
of Governors of the Federal Reserve System).
(h) Immediately prior to the time of the initial creation of an interest
hereunder in any Seller Asset, the Seller is the legal and beneficial owner of
the Seller Asset, in each case free and
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clear of any Adverse Claim except as created by this Agreement or to the extent
created by the Agent or the Purchaser or any Owner. On the date of the initial
creation of an interest in each Subject Receivable hereunder, such Subject
Receivable (except as otherwise set forth on the Daily Report) constitutes an
Eligible Receivable or Included Foreign Receivable. Upon each Purchase and
deposit to the Seller's Account, the Seller shall (i) transfer to the Owner
making such Purchase or deposit (and such Owner shall acquire) a valid and
perfected undivided percentage ownership interest in each Seller Asset, or (ii)
grant to the Agent, for the benefit of the Beneficiaries, a valid and perfected
first priority security interest in each Seller Asset, free and clear of any
Adverse Claim except as created by this Agreement and the Assignments or to the
extent created by the Agent or the Purchaser or any Owner. No effective
financing statement or other instrument similarly in effect covering any Seller
Asset or any Lock Box Account or other deposit account to the extent any
Collections are from time to time deposited therein is on file in any recording
office, except those filed in favor of the Agent relating to the Purchase
Documents, or in favor of the Seller and the Agent or those listing the Seller
or Maxtor as secured party and the applicable Obligor as debtor.
(i) Each Purchaser Report and Daily Report (in each case if prepared by
the Seller, Maxtor or any Selling Affiliate or any Affiliate of any thereof, or
to the extent that information contained therein is supplied by the Seller,
Maxtor or any Selling Affiliate or any Affiliate of any thereof), notice or
other written item of information, exhibit, financial statement, document, book,
record or report furnished or to be furnished at any time by the Seller, Maxtor
or any Selling Affiliate to the Agent, the Trustee or any Owner in each case in
connection with this Agreement is or will be accurate in all material respects
as of its date or (except as otherwise disclosed to the Agent, the Trustee or
such Owner, as the case may be, at such time) as of the date so furnished, and
as of such relevant date no such document contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
(j) The chief place of business and chief executive office of the Seller
and the office where the Seller keeps its records concerning the Seller Assets
are located at the address specified in Section 13.02 hereto (or at such other
locations, notified to the Agent and the Trustee in accordance with Section
5.01(f), in jurisdictions where all action required by Section 6.05 has been
taken and completed).
(k) The names and addresses of all the Lock Box Banks, together with the
account numbers of the Lock Box Accounts of the Seller and the Selling
Affiliates, respectively, at such Lock Box Banks, are specified in Schedule I
hereto (or at such other Lock Box Banks and/or with such other Lock Box Accounts
as have been notified to the Agent and for which Lock Box Agreements have been
executed in accordance with Section 6.06(b)).
(1) Neither the Seller nor any Affiliate (of the type set forth in
clause (i)(x) of the definition of the term "Affiliate") of the Seller has any
direct or indirect ownership or other financial interest in the Agent, the
Purchaser or any Bank.
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(m) The use by the Purchaser of the proceeds of its issuance of
commercial paper having a maturity of not more than nine months to make each
respective Purchase will constitute (i) a "current transaction" within the
meaning of Section 3(a)(3) of the Securities Act of 1933, as amended, and (ii) a
purchase or other acquisition of notes, drafts, acceptances, open accounts
receivable or other obligations representing part or all of the sales price of
merchandise, insurance or services with the meaning of Section 3(c)(5) of the
Investment Company Act of 1940, as amended.
(n) None of the Seller Assets is evidenced by any "instrument" or
"chattel paper" within the meaning of the UCC in effect in the State of
California other than any Receivable (i) which shall have become a Defaulted
Receivable after the date on which such Receivable became a Subject Receivable
hereunder or under the Original Agreement and (ii) in connection with which
Defaulted Receivable the Collection Agent shall have accepted an instrument,
which instrument shall have been duly endorsed and delivered to the Agent by the
Seller, to maximize the Collections thereof as contemplated by Section 6.02(c).
(o) No ERISA Event has occurred or is reasonably expected to occur with
respect to any Plan that has resulted or is reasonably likely to result in a
material liability of the Seller, Maxtor or any Selling Affiliate.
(p) The aggregate Insufficiency under all Plans does not exceed
$10,000,000.
(q) None of the Seller, Maxtor, any Selling Affiliate or any ERISA
Affiliate of any thereof has incurred or is reasonably expected to incur any
material Withdrawal Liability (that has not been satisfied) to any Multiemployer
Plan.
(r) None of the Seller, Maxtor, any Selling Affiliate or any ERISA
Affiliate of any thereof has been notified by the sponsor of a Multiemployer
Plan that such Multiemployer Plan is in reorganization or has been terminated,
within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated, within the meaning of
Title IV of ERISA.
(s) The Seller and its subsidiaries have no material liability with
respect to "expected postretirement benefit obligations" within the meaning of
Statement of Financial Accounting Standards No. 106.
(t) The Seller has not changed its name during the four month period
prior to the date hereof, and has no tradenatnes, fictitious names, assumed
names or "doing business as" names.
(u) With respect to all Seller Assets, the Seller has purchased such
Seller Assets from Maxtor or the applicable Selling Affiliate (in accordance
with the provisions of the Receivables Contribution and Sale Agreement or the
Selling Affiliate Receivables Contribution and Sale Agreement, as applicable)
for fair consideration and approximate fair market value for such Seller Assets
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. No such sale has been made for or on account of an
antecedent debt owed by Maxtor or
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such Selling Affiliate to the Seller, and no such sale or contribution is or may
be voidable or subject to avoidance under any section of the Federal Bankruptcy
Code.
(v) The Seller has not sold, assigned, transferred, pledged or
hypothecated any interest in any Seller Asset to any Person other than as
contemplated by the Purchase Documents.
(w) Each of the Seller, Maxtor and each Selling Affiliate has complied
with the Credit and Collection Policy in all material respects and since the
date of this Agreement there has been no change in the Credit and Collection
Policy except as permitted hereunder.
(x) The obligations of the Seller hereunder to make payments in respect of
fees and indemnities payable. to any Beneficiary rank at least equally with
indebtedness of the Seller which is not contractually subordinated.
(y) The Seller has not granted any Person other than the Agent dominion
and control of any Lock Box Account, or the right to take dominion and control
over any Lock Box Account at a future time or upon the occurrence of a future
event.
(z) The Seller has no subsidiaries and shall not establish or acquire any
subsidiaries.
(aa) The Seller has filed, or caused to be filed or be included in, all
tax reports and returns (federal, state, local and foreign), if any, required to
be filed by it and paid, or cause to be paid, all amounts of taxes, including
interest and penalties required to be paid by it, except for such taxes (i) as
are being contested in good faith by proper proceedings and (ii) against which
adequate reserves shall have been established in accordance with and to the
extent required by GAAP, but only so long as the proceedings refer-red to in
clause (i) above could not subject the Agent or any other Indemnified Party to
any civil or criminal penalty or liability or involve any material risk of the
loss, sale or forfeiture of any property, rights or interests covered hereunder
or under any other Purchase Document.
(bb) There are no Adverse Claims (including, without limitation, liens
or retained security titles of conditional vendors, but excluding any Adverse
Claims created hereunder) of any nature whatsoever on any properties of the
Seller. The Seller is not a party to any contract, agreement, lease or
instrument the performance of which, either unconditionally or upon the
happening of an event, will result in or require the creation of any Adverse
Claim on the property or assets of the Seller, or otherwise result in a
violation of this Agreement or any other Purchase Document, other than any
Adverse Claims created pursuant to any Purchase Document.
(cc) (i) The Seller is not a party to any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
organizational restriction that could reasonably be expected to have, and no
provision of applicable law or governmental regulation could reasonably be
expected to have, a material adverse effect on the condition (financial or
otherwise), business, operations, properties or prospects of the Seller, or may
reasonably be expected to have such an effect on the ability of the Seller to
carry out its obligations hereunder or under any other Purchase Document, and
(ii) neither the Seller nor, to the best of the knowledge of the Seller, any
other party is in default under or with respect to this Agreement,
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any other Purchase Document or any other contract, agreement, lease or other
instrument to which the Seller is a party and which is material to the Seller's
condition (financial or otherwise), business, operations, properties or
prospects, and neither the Seller nor any such other party has delivered or
received any notice of default thereunder.
(dd) The Lock Box Banks are the only institutions holding Lock Box
Accounts for the receipt of payments from all Obligors, and such Obligors have
been instructed or, upon the creation of Receivables owed by them, will be
instructed to make payments only to Lock Box Accounts, and such instructions
have not been modified or revoked by the Seller and are in full force and
effect.
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ARTICLE V
GENERAL COVENANTS OF THE SELLER
SECTION 5.0 1. 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 Seller Assets.
(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 and to the Seller Assets, 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, or, otherwise, at the Agent's expense, (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, Maxtor, their Affiliates or the agents of the
Seller, Maxtor or their Affiliates relating to the Seller Assets and the Lock
Box Account activity, 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 Seller Assets and the Lock Box Account
activity or the Seller's, Maxtor'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 Coopers & Lybrand to perform, and deliver to the Agent a written report
of, or permit other independent public accountants specified by the Agent (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 Receivables, the Related Security, the
Credit and Collection Policies, the Lock Box Account activity and the
performance by the Seller, Maxtor and the Selling Affiliates of their respective
obligations, covenants and duties under the Purchase Documents, in substantially
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
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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 Seller Assets at the address of the Seller referred to in Section
4.01 0) on the date hereof or, upon 30 days' prior written notice to the Agent
and the Trustee, 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 make all
payments in respect of Subject Receivables directly to a Lock Box
Account,
(ii) if the Seller shall otherwise 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 2.05, 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, 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 immediately sweep Collections from the Lock Box
Accounts to the Concentration Account.
(i) Selling Affiliate Receivables Contribution and Sale 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 Receivables
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Contribution and Sale Agreements, maintain the respective Selling Affiliate
Receivables Contribution and Sale Agreements in full force and effect, enforce
the respective Selling Affiliate Receivables Contribution and Sale 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 Receivables Contribution and Sale 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.
(j) Maintenance of Separate Existence. Do all things necessary to
maintain its corporate existence separate and apart from Maxtor and other
Affiliates of the Seller, including, without limitation, (i) maintaining proper
corporate records and books of account separate from those of such Affiliates;
(ii) maintaining its assets, funds and transactions separate from those of such
Affiliates, reflecting such assets and transactions in financial statements
separate and distinct from those of such Affiliates, and evidencing such assets,
funds and transactions by appropriate entries in the books and records referred
to in clause (i) above, and providing for its own operating expenses and
liabilities from its own assets and funds other than certain expenses and
liabilities relating to basic corporate overhead which may be allocated between
the Seller and such Affiliates; (iii) holding such appropriate meetings or
obtaining such appropriate consents of its Board of Directors as are necessary
to authorize all the Seller's corporate actions required by law to be authorized
by the Board of Directors, keeping minutes of such meetings and of meetings of
its stockholders and observing all other customary corporate formalities (and
any successor Seller not a corporation shall observe similar procedures in
accordance with its governing documents and applicable law); (iv) at all times
entering into its contracts and otherwise holding itself out to the public under
the Seller's own name as a legal entity separate and distinct from such
Affiliates; and (v) conducting all transactions and dealings between the Seller
and such Affiliates on an arm's-length basis.
(k) Compliance with Opinion Assumptions and Constituent Documents.
Without limiting the generality of Section 5.01(j) above, maintain in place all
policies and procedures, and take and continue to take all actions, described in
the assumptions as to facts set forth in, and forming the basis of, the opinions
set forth in the opinion delivered to the Agent in substantially the form of the
opinion delivered pursuant to Section 3. 0 1 (1), and comply with, and cause
compliance with, the provisions of the constituent documents of the Seller
delivered to the Agent pursuant to Section 3.01 as the same may, from time to
time, be amended, modified or otherwise supplemented with the prior written
consent of the Agent.
(1) Purchase of Seller Assets from Maxtor. With respect to all Seller
Assets outstanding from time to time, purchase from Maxtor or such Selling
Affiliate (in accordance with the Receivables Contribution and Sale Agreement or
the respective Selling Affiliate Receivables Contribution and Sale Agreement, as
applicable) for fair consideration and approximate fair market value for such
Seller Assets 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.
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(m) Nature of Business and Permitted Transactions. Engage solely in the
following businesses and transactions, directly or indirectly: purchasing Seller
Assets from Maxtor and the Selling Affiliates and selling interests in such
Seller Assets to the Owners hereunder and the other transactions permitted or
contemplated hereby.
(n) Receivables Contribution and Sale Agreement. 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 Receivables
Contribution and Sale Agreement and all Selling Affiliate Receivables
Contribution and Sale Agreements, maintain the Receivables Contribution and Sale
Agreement and all Selling Affiliate Receivables Contribution and Sale Agreements
in full force and effect, enforce the Receivables Contribution and Sale
Agreement in accordance with their respective 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 Receivables Contribution and Sale Agreement or any Selling
Affiliate Receivables Contribution and Sale Agreement 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.
(o) Conditions Subsequent to Initial Purchase. Deliver to the Agent (i)
as soon as possible, and in any event within 30 days after the Closing Date (or
such later date as may be agreed in writing by the Seller and the Agent),
completed requests for information, dated after the Closing Date, listing the
financing statements referred to in Section 3.01 (b) and (g) and all other
effective financing statements filed in the jurisdictions referred to in
subsection 3.01(b) and (g) that name the Seller or Maxtor as debtor or seller,
together with copies of such other financing statements (none of which shall
cover any Seller Assets other than Seller Assets covered by financing statements
with respect to which the Agent received financing statements of the type
described in Section 3. 01 (b) and (g)), and (ii) on or before April 10, 1998
(or such later date as may be agreed in writing by the Seller and the Agent), a
Parent Undertaking in substantially the form of Exhibit K duly executed by
Hyundai Electronics Industries Co., LTD. (which undertaking shall be released
upon satisfaction of the conditions precedent referred to in Section 3.01(o),
(p), (q) and (r)).
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 and the Trustee:
(a) 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 balance sheet of the Seller as of the end of such quarter and
statements of income and of cash flows of the Seller 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 balance sheet of the Seller as of the end of
such year and statements of income and of cash flows
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for such year, certified in a manner acceptable to the Agent by Coopers
& Lybrand 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) 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 any
Purchase Document;
(e) 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 Receivables on such day; and
(f) such other information, documents, records or reports
respecting the Seller Assets 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 in the
Purchase Documents, 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 any Owner) upon or with respect to, the
Seller's undivided interest in any Seller Assets or any Lock Box Account
or other deposit account to which any Collections of any Receivable are
sent 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 Maxtor 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 Maxtor'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 any Owner with respect thereto or hereunder; provided, however, that,
except as so permitted in Section 6.02, in no event shall the Seller
amend
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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, executed copies of Lock Box Agreements with
respect to each new Lock Box Bank and each new Lock Box Account and
delivered an updated Schedule I hereto to the Agent, 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.
(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, Maxtor and the Selling Affiliates, necessary
to reflect such change or use and to continue the perfection of the
ownership interests or security interests in the Seller Assets, and (ii)
new Lock Box Agreements 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-1 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) Other Adverse Claims. Except as otherwise provided in the
Purchase Documents, create or suffer to exist any Adverse Claim upon or
with respect to any of the Seller's property, or assign any right to
receive income, to secure any Debt of any Person.
(i) Debt. Except as otherwise provided in the Purchase
Documents, create, incur, assume or suffer to exist any Debt.
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(j) Contingent Obligations. Except as otherwise provided in the
Purchase Documents, create, incur, assume or suffer to exist any
Contingent Obligation.
(k) Distributions, Etc. Declare or make any dividend payment or
other distribution of assets, properties, cash, rights, obligations or
securities on account of any interest in the Seller, or return any
capital to its owners as such, or purchase, retire, defease, redeem or
otherwise acquire for value of make any payment in respect of any
interest in the Seller or any warrants, rights or options to acquire any
such interest, now or hereafter outstanding, other than, in any such
case, as shall have been duly authorized by all necessary action of the
Seller and in accordance with applicable law, provided that no event has
occurred and is continuing, or would result from such declaration,
dividend, distribution, return, purchase, retirement, defeasance,
redemption, acquisition or payment, which constitutes an Event of
Termination or an Incipient Event of Termination.
(1) Transactions with Affiliates. Enter into or permit to exist
any transaction (including, without limitation, the purchase, sale,
lease or exchange of any property or the rendering of any service) with
Maxtor or any other Affiliate of the Seller, other than on terms that
are fair and reasonable in the circumstances and that reasonably
approximate an arm's-length transaction between unaffiliated parties.
(m) Receivables Contribution and Sale Agreement. (i) Cancel or
terminate the Receivables Contribution and Sale Agreement or any Selling
Affiliate Receivables Contribution and Sale Agreement or consent to or
accept any cancellation or termination thereof, (ii) amend or otherwise
modify any term or condition of the Receivables Contribution and Sale
Agreement or any Selling Affiliate Receivables Contribution and Sale
Agreement or give any consent, waiver or approval thereunder, (iii)
waive any default under or breach of the Receivables Contribution and
Sale Agreement or any Selling Affiliate Receivables Contribution and
Sale Agreement, or (iv) take any other action under the Receivables
Contribution and Sale Agreement or any Selling Affiliate Receivables
Contribution and Sale Agreement not required by the terms thereof that
would impair the value of any Seller Assets or the rights or interests
of the Seller thereunder or of the Agent or any owner or Indemnified
Party hereunder or thereunder.
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent. (a) The Subject
Receivables shall be serviced, administered and collected by the Person (the
"Collection Agent") designated to do so from time to time in accordance with
this Section 6.01. Until the Agent designates a new Collection Agent, Maxtor is
hereby designated as, and hereby agrees to perform the duties and obligations
of, the Collection Agent pursuant to the terms hereof. The Agent may, at any
time, designate as Collection Agent any Person (including itself) to succeed
Maxtor or any successor Collection Agent upon such terms and conditions as the
Agent may require. The Collection
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Agent may, with the prior consent of the Agent, subcontract with any other
Person to service, administer or collect the Subject Receivables, provided that
the Person with whom the Collection Agent so subcontracts shall not become the
Collection Agent hereunder and the Collection Agent shall remain liable for the
performance of the duties and obligations of the Collection Agent pursuant to
the terms hereof The Agent hereby consents to the subcontracting by Maxtor, as
Collection Agent, with each Selling Affiliate from time to time to service,
administer and collect the Subject Receivables originally owed to such Selling
Affiliate, subject to the proviso to the preceding sentence, and provided that
the Agent may at any time require the Collection Agent to, and the Collection
Agent shall at the Agent's request, terminate such subcontracting with such
Selling Affiliate.
(b) The Collection Agent is hereby authorized and empowered to
instruct the Trustee to make withdrawals and payments from the Concentration
Account, subject to the limitations set forth in Section 6.06(a) and as
otherwise set forth in this Agreement.
SECTION 6.02. Duties of Collection Agent. (a) The Collection
Agent shall (unless the Agent directs otherwise and subject to the Agent's
direction and control to the extent consistent with the applicable Credit and
Collection Policy) take or cause to be taken all such actions as may be
necessary or advisable to collect each Subject Receivable from time to time, all
in accordance with applicable laws, rules and regulations, with reasonable care
and diligence, and in accordance with the applicable Credit and Collection
Policy. Each of the Seller, the Purchaser and the Agent hereby appoints as its
agent the Collection Agent, from time to time designated pursuant to Section
6.01, to enforce its respective rights and interests in and under the Seller
Assets. In no event shall the Collection Agent be entitled to make the
Purchaser, the Agent or any Owner a party to any litigation without the express
prior written consent of such party. Notwithstanding anything to the contrary
contained herein, the Agent shall have the absolute and unlimited right to
direct the Collection Agent to commence or settle any legal action or proceeding
to enforce collection of Subject Receivables to the extent consistent with the
applicable Credit and Collection Policy.
(b) The Collection Agent shall instruct the Trustee in writing to
set aside and hold in trust for the account of the Seller and each Owner their
respective allocable shares of the Collections of Subject Receivables in
accordance with Section 2.05. The Collection Agent shall take all other actions
required to be taken by it under this Agreement, including, without limitation,
delivery of the Daily Report and Purchaser Report pursuant to Section 2.06
(c) The Collection Agent may not extend the maturity or adjust
the Outstanding Balance, or otherwise amend or modify the terms, of any Subject
Receivable or amend, modify or waive any term or condition, or terminate or
permit the termination, of any Contract related thereto; provided, however that
if and so long as no Event of Insecurity shall have occurred and be continuing,
and unless the Agent shall have otherwise notified Maxtor, Maxtor, while it is
the Collection Agent, may, in accordance with the Credit and Collection Policy,
extend the maturity of any Defaulted Receivable as Maxtor may determine to be
appropriate to maximize Collections thereof.
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(d) The Seller shall deliver to the Collection Agent, and the
Collection Agent shall hold in trust for the Seller and each Owner in accordance
with their respective interests, all documents, instruments and records
(including, without limitation, computer tapes or disks) which evidence or
relate to Subject Receivables.
(e) The Collection Agent, if other than the Seller, shall as soon
as practicable upon demand deliver to the Seller all documents, instruments and
records in its possession which evidence or relate to Receivables of the Seller
other than Subject Receivables, and copies of documents, instruments and records
in its possession which evidence or relate to Subject Receivables.
(f) The Collection Agent's authorization under this Agreement
shall terminate on the Collection Date.
SECTION 6.03. Rights of the Agent. (a) The Agent may, at any time
after the occurrence and during the continuance of any Event of Insecurity and
at the Seller's expense, notify the Obligors of Subject Receivables, or any of
them, of the ownership of Purchased Interests by the Owners.
(b) At any time following the designation of a Collection Agent
other than Maxtor pursuant to Section 6.01:
(i) The Agent may direct the Obligors of Subject Receivables, or
any of them, to make payment of all amounts due or to become due to the
Seller under any Subject Receivable directly to the Agent or its
designee.
(ii) The Seller shall, at the Agent's request and at the Seller's
expense, give notice of the ownership of Purchased Interests to such
Obligors and direct them to make such payments directly to the Agent or
its designee.
(iii) The Seller shall, at the Agent's request and at the
Seller's expense, (A) assemble all of the documents, instruments and
other records (including, without limitation, computer tapes and disks)
which evidence the Seller Assets, or which are otherwise necessary or
desirable to collect such Subject Receivables, and shall make the same
available to the Agent at a place selected by the Agent or its designee,
and (B) segregate all cash, checks and other instruments received by it
from time to time constituting Collections of Subject Receivables in a
manner acceptable to the Agent and shall, promptly upon receipt, remit
all such cash, checks and instruments, duly endorsed or with duly
executed instruments of transfer, to a Lock Box Account.
(iv) The Seller and Maxtor hereby irrevocably authorize the Agent
to take any and all steps in the Seller's, Maxtor's or the respective
Selling Affiliates' name and on behalf of the Seller and the Owners,
necessary or desirable, in the determination of the Agent, to collect
all amounts due under any and all Seller Assets, including, without
limitation, endorsing the Seller's, Maxtor's or such Selling Affiliate's
name on checks and other instruments representing Collections, enforcing
Subject Receivables and the related
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Contracts, and adjusting, settling or compromising the amount or payment
thereof, in the same manner and to the same extent as the Seller, Maxtor
or such Selling Affiliate might have done absent the Purchases
hereunder, and the Seller and Maxtor hereby appoints the Agent as its
attorney-in-fact to carry out the intent and purpose of this
subparagraph.
SECTION 6.04. Responsibilities of the Seller. Anything herein to
the contrary notwithstanding:
(a) The Seller and the respective Selling Affiliates shall perform all
of their respective obligations under the Contracts related to the Subject
Receivables to the same extent as if Purchased Interests had not been sold
hereunder and the exercise by the Agent of its rights hereunder shall not
relieve the Seller or any Selling Affiliate from such obligations or its
obligations with respect to Subject Receivables; and
(b) Neither the Agent nor the Owners shall have any obligation or
liability with respect to any Seller Assets, nor shall any of them be obligated
to perform any of the obligations of the Seller or any Selling Affiliate
thereunder.
SECTION 6.05. Further Action Evidencing Purchases. (a) The Seller
agrees that from time to time, at its expense, it will, and will cause the
respective Selling Affiliates to, promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that the Agent may reasonably request, in order to perfect,
protect or more fully evidence the Purchased Interests, or to enable any of them
or the Agent to exercise and enforce any of their respective rights and remedies
hereunder or under the Assignments. Without limiting the generality of the
foregoing, the Seller will, and will cause the respective Selling Affiliates to,
upon the request of the Agent: (i) execute and file such financing or
continuation statements, or amendments thereto or assignments thereof, and such
other instruments or notices, as may be necessary or desirable, or as the Agent
may request, in order to perfect, protect or evidence such Purchased Interests;
(ii) at any time after the occurrence and during the continuance of any Event of
Insecurity (A) mark conspicuously each invoice evidencing each Subject
Receivable and the related Contract with a legend, acceptable to the Agent,
evidencing that such Purchased Interests have been sold in accordance with this
Agreement; and (B) mark its master data processing records evidencing such
Subject Receivables and related Contracts with such legend.
(b) The Seller hereby authorizes the Agent to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relating to all or any Seller Assets now existing or hereafter arising
without the signature of the Seller where permitted by law. A photocopy or other
reproduction of this Agreement or any financing statement covering all or any of
the Seller Assets shall be sufficient as a financing statement where permitted
by law.
(c) If the Seller fails to perform any agreement contained
herein, the Agent may itself perform, or cause performance of, such agreement,
and the expenses of the Agent
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incurred in connection therewith shall be payable by the Seller under Section
10.01 or Section 13.06, as applicable.
SECTION 6.06. Establishment of Concentration Account and Lock Box
Accounts. (a) Concentration Account. On or prior to the Closing Date, the
Collection Agent, for the benefit of the Beneficiaries, shall establish and
maintain or cause to be established and maintained in the name of the Agent with
Bankers Trust Company a segregated trust account (such account being the
"Concentration Account" and such institution holding such account being the
"Concentration Account Bank"), such account bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Beneficiaries. The Agent shall possess all right, title and interest in and to
all funds from time to time on deposit in the Concentration Account and in all
proceeds thereof. The Concentration Account shall be under the sole dominion and
control of the Agent for the benefit of the Beneficiaries, and neither the
Seller, nor any Person claiming by, through or under the Seller, shall have any
right, title or interest in, or any right to withdraw any amount from, the
Concentration Account. Except as expressly provided, in this Agreement, the
Collection Agent agrees that it shall have no right of set-off or banker's lien
against, and no right to otherwise deduct from, any funds held in the
Concentration Account for any amount owed to it by the Trustee or any
Beneficiary. The Collection Agent shall cause Collections to be deposited into
the Concentration Account on each Business Day as promptly as is reasonably
practicable after receipt in a Lock Box Account, and in any event no later than
the day on which such Collections become available funds in such Lock Box
Account. The Seller will require Maxtor and the Selling Affiliates, if any, to
deposit any Collections received by it into a Lock Box Account within two
Business Days following the Business Day on which such Collections are so
received. Notwithstanding the foregoing, if and to the extent that funds that
are not Collections are deposited into the Concentration Account, the Collection
Agent may direct the Trustee in writing to withdraw such funds from the
Concentration Account and deposit them in the Seller's Account. The Agent hereby
authorizes the Trustee to make withdrawals and payments from the Concentration
Account, and to invest the funds in the Concentration Account, in accordance
with the provisions of this Agreement.
If, at any time, the institution holding the Concentration
Account ceases to be an Eligible Institution, the Collection Agent, upon
obtaining actual knowledge thereof, shall, within 15 Business Days (i) establish
a new Concentration Account meeting the conditions specified above with an
Eligible Institution, (ii) transfer any cash and/or any investments held in the
old Concentration Account or with respect thereto to such new Concentration
Account and (iii) in the case of any new Concentration Account, deliver to all
Lock Box Banks new Lock Box Agreements (with copies thereof to the Trustee)
referring to such new Concentration Account, and from the date such new
Concentration Account is established, it shall be the "Concentration Account".
Pursuant to the authority granted to the Collection Agent in Section 6.02, the
Collection Agent shall have the power to instruct the Trustee to make
withdrawals and payments from the Concentration Account for the purposes of
carrying out the Collection Agent's or the Trustee's duties specified in this
Agreement.
Funds on deposit in the Concentration Account, shall, at the
written direction of the Collection Agent, be invested by the Trustee or the
Eligible Institution maintaining such
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accounts in Available Investments as instructed by the Collection Agent in
writing (which may be a standing instruction). All such Available Investments
shall be held by the Trustee or the Eligible Institution maintaining such
accounts for the benefit of the Beneficiaries. Such funds shall be invested in
Available Investments that will mature so that funds will be available on or
before the close of business on the Business Day next preceding the following
Settlement Date in amounts sufficient for the Trustee to make each distribution
required under this Agreement on the next Settlement Date. All interest and
other investment earnings (net of losses and investment expenses) received on
funds on deposit in the Concentration Account, to the extent such investment
income is not needed to pay the Beneficiaries on such Settlement Date, shall be
added to the Concentration Account and allocated in accordance with Section
2.06. The Trustee is hereby authorized, unless otherwise directed in writing by
the Collection Agent, to effect transactions in Available Investments through a
capital markets affiliate of the Trustee.
(b) Lock Box Accounts. On or prior to the Closing Date, the
Collection Agent for the benefit of the Beneficiaries, shall establish and
maintain or cause to be established and maintained in the name of the Agent with
an Eligible Institution, lock boxes or segregated accounts (each such lockbox
and account, a "Lock Box Account"). Obligors will be directed to remit payments
with respect to their Receivables to a Lock Box Account. The Lock Box Accounts
shall be under the sole dominion and control of the Agent for the benefit of the
Beneficiaries, and neither the Seller, nor any Person claiming by, through or
under the Seller, shall have any right, title or interest in, or any right to
withdraw any amount from, any Lock Box Account. The Collection Agent shall cause
the Agent to transfer Collections to the Concentration Account in the manner set
forth in Section 6.06(a). Each Lock Box Account shall be maintained with
documentation and instructions in form and substance satisfactory to the Trustee
and the Agent. Such documentation shall provide, among other things, that
available amounts shall be immediately transferred to the Concentration Account.
The Collection Agent will not (i) make any change in the name, address or ABA
number of any Lock Box Account Bank, the account number of any Lock Box Account,
the name, address or ABA number of any Concentration Account Bank, or the
account number for any Concentration Account from that set forth in Schedule I
hereto or (ii) amend any instruction to any Obligor or any instruction to or
agreement with any Lock Box Bank with respect to any Lock Box Account (other
than to (A) redirect payments of Obligors to a different Lock Box Account or to
the Concentration Account, (B) close unused Lock Box Accounts and (C) open new
Lock Box Accounts if the Trustee shall have received executed copies of the Lock
Box Agreements with each new Lock Box Bank, and an updated Schedule I) unless
the Trustee (if directed in writing to do so by the Agent), shall have given its
prior consent to such change or amendment. Upon notice from any Lock Box Bank
that any Lock Box Account or Lock Box Agreement is to be terminated by such Lock
Box Bank, the Collection Agent shall forthwith (and in any event within 15 days
after receipt of such notice), (i) establish a new Lock Box Account (if the Lock
Box Account in respect of which the notice of termination has been given is the
only Lock Box Account hereunder), and (ii) instruct each Obligor to make all
payments made by it to the Collection Agent thereafter to a Lock Box Account in
respect of which no notice of termination has been given, or, if there is no
such Lock Box Account, to the Concentration Account.
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The Collection Agent hereby agrees and acknowledges that (i) it
has executed and delivered to the Trustee and the Agent a letter and executed
acknowledgment thereto substantially in the form of Exhibit C hereto (each, a
"Lock Box Agreement" as the case may be), addressed to and executed by each
banking institution or other Person with which a Lock Box Account is maintained
(each such banking institution with which a Lock Box Account is maintained being
a "Lock Box Bank") and (ii) it shall execute and deliver a substantially similar
Lock Box Agreement, prior to the establishment by it of any additional or
alternative Lock Box Account. The Collection Agent hereby agrees, and the
Trustee and the Agent hereby each acknowledges, that the execution and delivery
of each Lock Box Agreement transfers all right, title and interest in all
monies, securities and instruments in the applicable Lock Box Account to the
Agent.
SECTION 6.07. Establishment of Trustee's Account and Cure Account. (a)
(i) The Collection Agent, for the benefit of the Beneficiaries, shall establish
and maintain in the name of the Trustee, with an Eligible Institution a
segregated trust account accessible only by the Trustee (the "Trustee's
Account"), which shall be identified as the "Trustee's Account for the Maxtor
Receivables Purchase and Sale Agreement" and shall bear a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Beneficiaries. The Trustee's Account initially shall be established at Bankers
Trust Company and thereafter may only be established or maintained at an
Eligible Institution.
(ii) At the written direction of the Collection Agent (which may be a
standing direction), funds on deposit in the Trustee's Account shall be invested
by the Trustee in Available Investments selected by the Collection Agent that
will mature so that such funds will be available on or before the close of
business on the Business Day next preceding the following Settlement Date. All
such Available Investments shall be held by the Trustee for the benefit of the
Beneficiaries. On each Settlement Date, all interest and other investment
earnings (net of losses and investment expenses) on funds on deposit in the
Trustee's Account shall be applied as set forth in Section 2.06. Funds deposited
in the Trustee's Account on a Business Day which immediately precedes a
Settlement Date upon the maturity of any Available Investments are not required
to be invested overnight.
(b) (i) The Collection Agent, for the benefit of the
Beneficiaries, shall establish and maintain in the name of the Trustee a
segregated trust account accessible only by the Trustee (the "Cure Account"),
which shall be identified as the "Cure Account for the Maxtor Receivables
Corporation Receivables Purchase and Sale Agreement" and shall bear a
designation clearly indicating that the funds deposited therein are held for the
benefit of the Beneficiaries. The Cure Account shall initially be established
with Bankers Trust Company and thereafter may only be established or maintained
at an Eligible Institution.
(ii) At the written direction of the Collection Agent (which may
be a standing direction), funds on deposit in the Cure Account shall be invested
by the Trustee in Available Investments selected by the Collection Agent that
will mature so that such funds will be available on or before the close of
business on the Business Day next preceding the following Settlement Date. All
such Available Investments shall be held by the Trustee for the benefit of the
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Beneficiaries. On each Settlement Date, all interest and other investment
earnings (net of losses and investment expenses) on funds on deposit in the Cure
Account shall be applied as set forth in Section 2.06. Funds deposited in the
Cure Account on a Business Day which immediately precedes a Settlement Date upon
the maturity of any Available Investments are not required to be invested
overnight.
(c) (i) The Trustee shall possess all right, title and interest
in and to all funds on deposit from time to time in, and all Available
Investments credited to, the Trustee's Account and the Cure Account
(collectively, the "Trustee Accounts") and in all proceeds thereof. The Trustee
Accounts shall be under the sole dominion and control of the Trustee for the
benefit of the Beneficiaries. If, at any time, any Trustee Account is held by an
institution other than an Eligible Institution, the Trustee (or the Collection
Agent, at the direction of the Trustee and on its behalf) shall within 10
Business Days establish a new Trustee Account meeting the conditions specified
in paragraph (a)(i) or (b)(i) above, as applicable, and shall transfer any cash
and/or any investments to such new Trustee Account. Neither the Seller, the
Collection Agent nor any Person or entity claiming by, through or under the
Seller, the Collection Agent or any such Person or entity shall have any right,
title or interest in, or any right to withdraw any amount from, any Trustee
Account, except as expressly provided herein. Schedule VI identifies each
Trustee Account by setting forth the identification name of such account, the
account number of each such account, the account designation of each such
account and the name and location of the institution with which such account has
been established. If a substitute Trustee Account is established pursuant to
this Section 6.06, the party establishing such substitute Trustee Account shall
promptly provide to the Collection Agent or the Trustee, as applicable, an
amended Schedule VI, setting forth the relevant information for such substitute
Trustee Account.
(ii) Notwithstanding anything herein to the contrary, the
Collection Agent shall have the power, revocable by the Trustee at the direction
of the Agent, to instruct the Trustee in writing to make withdrawals and
payments from the Trustee Accounts for the purposes of carrying out the
Collection Agent's or Trustee's duties hereunder.
(d) At no time may greater than 10% of the funds on deposit in
any Trustee Account be invested in Available Investments (other than obligations
of the United States government or agencies the obligations of which are
guaranteed by the United States government and money market funds) of any single
entity or its Affiliates. Nothing herein shall be construed to impose any
obligation on the Trustee to monitor compliance with this Section 6.07(d).
(e) Any request by the Collection Agent to invest funds on
deposit in any Trustee Account shall be in writing (which may be a standing
instruction) and shall state that the requested investment is an Available
Investment.
(f) The Trustee is hereby authorized, unless otherwise directed
in writing by the Collection Agent, to effect transactions in Available
Investments through a capital markets affiliate of the Trustee.
(g) In no event shall the Trustee be liable for the selection of
Available Investments or for investment losses incurred thereon. The Trustee
shall have no liability in
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respect of losses incurred as a result of the liquidation of any investment
prior to its stated maturity or the failure of the Collection Agent to provide
timely written investment direction. The Trustee shall have no obligation to
invest or reinvest any amounts held hereunder in the absence of written
investment direction.
(h) The Trustee will periodically report to the Collection Agent,
the Seller and the Agent from time to time on such investments, and at such
other times that are reasonably requested by the Seller or the Collection Agent.
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
Company or Maxtor 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 Company or Maxtor 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 any Purchase Document when due, in the case of any payment in
respect of any Purchase Price or Yield (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 Yield; or
(b) The Seller, Maxtor or the Company shall fail to perform or observe
any term, covenant or agreement contained in Section 5.01 (i) (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 Receivables Contribution
and Sale 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(l),
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 Receivables Contribution and Sale 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 Receivables Contribution
and Sale Agreement unless such payment shall also not be made within the
applicable cure period set forth in Section 7.01 (a)(ii) above); or
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(c) Any representation or warranty or statement made by the Seller,
Maxtor, the Company 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, the Company, Maxtor 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, the Company, Maxtor or any Selling Affiliate, as
applicable, by the Agent; or
(e) The Seller, the Company, Maxtor, HEA, HEI or any Selling Affiliate
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
in the Seller Assets, or the Agent, for the benefit of the Beneficiaries, shall
cease to have a valid and perfected first priority security interest in the
Seller Assets, or the Assignment 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 the Seller Assets or valid and
perfected first priority security interest therein; or
(g) The Seller, the Company, Maxtor, HEA or any Selling Affiliate 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, the Company, Maxtor or any Selling Affiliate 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,
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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, the
Company, Maxtor or any Selling Affiliate shall take any corporate action to
authorize any of the actions set forth above in this subsection (g); or
(h) The average Default Termination Ratio for any Purchased Interest as
at the last day of any three successive Fiscal Months most recently ended shall
exceed 6.0%, or the average Delinquency Ratio for any Purchased Interest as at
the last day of any three successive Fiscal Months most recently ended shall
exceed 10.0%, or the average Loss-to-Liquidation Ratio for any Purchased
Interest as at the last day of any three successive Fiscal Months most recently
ended shall exceed 1.0%, or the average Dilution Ratio for any Purchased
Interest as at the last day of any three successive Fiscal Months most recently
ended shall exceed 9.0%; 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, the Company, Maxtor or any Selling Affiliate to collect Subject
Receivables or the ability of the Seller, the Company, Maxtor 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, the Company, Maxtor or any Selling Affiliate or any
ERISA Affiliate of either thereof related to such ERISA Event) exceeds
$10,000,000; or
(k) The Seller, the Company, Maxtor 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, the Company, Maxtor or
any Selling Affiliate, respectively, and its ERISA Affiliates as Withdrawal
Liability (determined as of the date of such notification), exceeds $ 1
0,000,000 or requires payments exceeding $10,000,000 per annum; or
(1) The Seller, the Company, Maxtor 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,
the Company, Maxtor 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, the Company, Maxtor or any Selling Affiliate, as
applicable to such Purchase Document, or the Seller, the
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Company, Maxtor or any Selling Affiliate, as applicable, shall so state in
writing, or any Purchase Document shall cease to be in full force and effect; or
(n) The Company shall, at any time, together with HEI, HMM and HC cease
to own directly or indirectly (i) at least 30% of the issued and outstanding
shares of the capital stock of Maxtor, (ii) at least 30% of the issued and
outstanding shares of the capital stock of each Selling Affiliate, or (iii) at
least 51% of the issued and outstanding shares of the capital stock of Maxtor
while any Person (other than HEI, the Company, HMM or HC) directly or indirectly
owns 5% or greater of the issued and outstanding shares of the capital stock of
Maxtor, or Maxtor shall, at any time, cease to own 100% of the issued and
outstanding shares of the capital stock of the Seller; or
(o) Any of the Company's long-term public senior debt securities shall
be rated less than B- or B3 by S&P and Moody's, respectively or, if such
securities are not rated by S&P and Moody's, such securities have a deemed
rating of at least B- and B3, as determined by the Agent in its sole discretion;
or
(p) the Seller's constituent documents shall be amended, supplemented or
otherwise modified; or
(q) the Net Subject Receivables Balance shall, for a period of five (5)
consecutive Business Days, be less than the Required Net Subject Receivables
Balance; or
(r) the sum of the Purchased Interests shall equal or exceed 90% until
the Agent is satisfied with the Daily Report procedures hereunder, and 100%
thereafter.
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 (with a copy of such notification
to the Trustee) 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, the Company, Maxtor 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, and no further
Purchases shall be made hereunder. 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 VIII
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THE AGENT
SECTION 8.01. Authorization and Action. The Purchaser hereby
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under the Purchase Documents as are delegated to the
Agent by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto.
SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of
its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them as Agent under or in connection with
this Agreement any other Purchase Document or any instrument or document
furnished pursuant hereto (including, without limitation, the Agent's servicing,
administering or collecting Subject Receivables as Collection Agent pursuant to
Section 6.01), except for its or their own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, except as
otherwise agreed by the Agent and any Owner, the Agent: (i) may consult with
legal counsel (including counsel for the Seller, Maxtor, the respective Selling
Affiliates or the Company), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (ii) makes no warranty or representation to any Owner
and shall not be responsible to any Owner for any statements, warranties or
representations (whether written or oral) made in or in connection with any
Purchase Document or any other instrument or document furnished pursuant hereto;
(iii) shall not have any duty to ascertain or to inquire as to the performance
or observance of any of the terms, covenants or conditions of any Purchase
Document or any other instrument or document furnished pursuant hereto on the
part of the Seller, Maxtor, the respective Selling Affiliates or the Company or
to inspect the property (including the books and records) of the Seller, Maxtor,
the respective Selling Affiliates or the Company; (iv) shall not be responsible
to any Owner for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of any Purchase Document or any other
instrument or document furnished pursuant hereto or thereto or any Subject
Receivable or Purchased Interest; and (v) shall incur no liability under or in
respect of any Purchase Document or any other instrument or document furnished
pursuant hereto by acting upon any notice (including notice by telephone),
consent, certificate or other instrument or writing (which may be by telecopier,
telegram, cable or telex) believed by it to be genuine and signed or sent by the
proper party or parties.
SECTION 8.03. CNAI and Affiliates. With respect to any Purchased
Interest owned by it, CNAI shall have the same rights and powers under this
Agreement as any other Owner and may exercise the same as though it were not the
Agent. CNAI and its Affiliates may generally engage in any kind of business with
the Seller, Maxtor, the respective Selling Affiliates or the Company or any
Obligor, any of their respective Affiliates and any Person who may do business
with or own securities of the Seller, Maxtor, the respective Selling Affiliates
or the Company or any Obligor or any of their respective Affiliates, all as if
CNAI were not the Agent and without any duty to account therefor to the Owners.
ARTICLE IX
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ASSIGNMENT OF PURCHASED INTERESTS
SECTION 9.01. Assignment. (a) The Purchaser may assign to any
Assignee, and any such Assignee may assign to any other Assignee, all or any
portion of any of its Purchased Interests pursuant to a written assignment with
respect to each such Purchased Interest in such form, and upon such other terms
and conditions, if any, as the parties thereto may mutually agree. Upon any such
assignment, (i) the Assignee shall become the Owner of such Purchased Interest
or portion thereof for all purposes of the Purchase Documents and any other
instrument or document furnished pursuant hereto and (ii) the Owner assignor
thereof shall relinquish its rights with respect to such Purchased Interest or
portion thereof for all purposes of the Purchase Documents and any other
instrument or document furnished pursuant hereto. The parties to each such
assignment shall deliver to the Agent the related written assignment, duly
executed by such parties, and each assignor shall promptly execute and deliver
all further instruments and documents, and take all further action, that the
Assignee may reasonably request in order to perfect, protect or more fully
evidence the Assignee's right, title and interest in and to such Purchased
Interest, and to enable the Assignee to exercise or enforce any rights under the
Purchase Documents and any other instrument or document furnished pursuant
hereto with respect to such Purchased Interest or portion thereof. The Agent
shall (i) provide notice to the Seller of any assignment of a Purchased Interest
or portion thereof hereunder and (ii) maintain at its office referred to in
Section 13.02 a copy of each written assignment delivered to it and a register
for the recordation of the names and addresses of the Owners, and the Purchased
Interests or portions thereof owned by such Owners, from time to time. The
entries in such register shall constitute prima facie evidence of the accuracy
of the information contained therein, and the Seller, the Agent, the Purchaser
and the Owners may treat each Person whose name is recorded therein as an Owner
hereunder for all purposes of this Agreement. Such register shall be available
for inspection by the Seller or any Owner at any reasonable time and from time
to time upon reasonable prior notice.
(b) By executing and delivering an assignment (in the case of an Owner
assignor) and executing and accepting an assignment (in the case of an
Assignee), the Owner assignor thereunder and the Assignee thereunder confirm and
agree with each other and the other parties hereto as follows: (i) other than as
provided in such assignment, such assigning Owner makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any other Purchase Document or any other instrument or document furnished
pursuant hereto or thereto or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other Purchase
Document or any other instrument or document furnished pursuant hereto or
thereto, or the perfection, priority or value of any ownership or security
interest created or purported to be created hereunder or under any other
Purchase Document; (ii) such assigning Owner makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Seller or Maxtor or the performance or observance by the Seller or Maxtor of any
of its obligations under this Agreement, or any other Purchase Document or any
other instrument or document furnished pursuant hereto or thereto; (iii) such
Assignee confirms that it has received a copy of this Agreement, each other
Purchase Document and any other instrument or document furnished pursuant hereto
or thereto, together with copies of the
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most recent annual and periodic financial statements delivered pursuant to
clauses (a) and (b) of Section 5.02 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and to purchase such Purchased Interest; (iv) such Assignee
will, independently and without reliance upon the Agent, any of its Affiliates,
such assigning Owner or any other Owner and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
Assignee appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement, the other Purchase
Documents and any other instrument or document furnished pursuant hereto or
thereto as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; (vi) such Assignee appoints as its
agent the Collection Agent -from time to time designated pursuant to Section
6.01 to enforce its respective rights and interests in and under the Seller
Assets; and (vii) such Assignee agrees that it will not institute against the
Purchaser any proceeding of the type referred to in Section 7.01 (g) so long as
any Commercial Paper Notes issued by the Purchaser shall be outstanding or there
shall not have elapsed one year plus one day since the last day on which any
such Commercial Paper Notes shall have been outstanding.
SECTION 9.02. Annotation of the Assignment. The Agent shall
annotate the Assignment to reflect any assignments made pursuant to Section 9.01
or otherwise.
ARTICLE X
INDEMNIFICATION
SECTION 10.1. 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 and expenses, but excluding (a) any amount to the
extent resulting from gross negligence or willful misconduct on the part of such
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 any transaction contemplated thereby, the ownership of Purchased
Interests, the use of proceeds of any Purchase or deposit of Owner Collections
to the Seller's Account or in respect of any Seller Asset (all of the foregoing,
to the extent not so excluded, being collectively referred to as "Indemnified
Amounts"). Without limiting or being limited by the foregoing and whether or not
any of the transactions contemplated hereby are consummated, the Seller shall
pay on demand to each Indemnified Party any and all amounts necessary to
indemnify such Indemnified Party from and against all Indemnified Amounts
relating to, resulting from, or which would not have occurred but for:
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(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, Maxtor, the Company 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, Maxtor or any Selling Affiliate
to comply with any applicable law, rule or regulation with respect to
any Seller Asset, or the nonconformity of any Seller Asset with any such
applicable law, rule or regulation;
(iv) the failure to either (a) vest in the Owner of a Purchased
Interest a valid and perfected first priority undivided percentage
ownership interest, to the extent of each Purchased Interest, in each
Seller Asset; or (b) vest in the Agent, for the benefit of the
Beneficiaries, a valid and perfected first priority security interest in
any Seller Asset; or the failure of the Seller to have obtained a first
priority perfected ownership interest in the Seller Assets transferred
or purported to be transferred to the Seller under the Receivables
Contribution and Sale Agreement or any Selling Affiliate Receivables
Contribution and Sale Agreement, free and clear of any Adverse Claim;
(v) the failure of the Seller, Maxtor or any Selling Affiliate to
have filed, or any delay by the Seller, Maxtor 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 Seller Asset at any time;
(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, the Company, Maxtor 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;
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(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 deposit to the Seller's
Account or the ownership of Purchased Interests or the security or in
respect of any Receivable, Related Security, Contract, Collections or
Additional Assigned Rights, 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, Maxtor, the Company, any
Selling Affiliate or any Affiliate of any thereof;
(x) the failure to pay when due any taxes payable by the Seller,
the Company, Maxtor 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, Maxtor 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. The indemnification
provisions of this Section 10.01 shall survive the termination of this
Agreement.
ARTICLE XI
THE TRUSTEE
SECTION 11.01. Duties of the Trustee. (a) The Trustee undertakes
to perform such duties and only such duties as are specifically set forth in
this Agreement, and no implied duties or covenants shall be read into this
Agreement against the Trustee.
(b) The Trustee, upon receipt of any resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
substantially conform to the requirements of this Agreement. The Trustee shall
give prompt written notice to the Seller and the Agent of any material lack of
conformity of any such instrument to the applicable requirements of this
Agreement discovered by the Trustee.
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(c) Subject to Section 11.01 (a), no provision of this Agreement
shall be construed to relieve the Trustee from liability for its own grossly
negligent action, its own grossly negligent failure to act or its own willful
misconduct; provided, however, that:
(i) the Trustee shall not be personally liable for an error of
judgment made in good faith by any Responsible Official of the Trustee,
unless it shall be proved that the Trustee was grossly negligent in
ascertaining the pertinent facts;
(ii) the Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of the Agent relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee in accordance with the terms of this Agreement, or exercising
any trust or power conferred upon the Trustee under this Agreement; and
(iii) the Trustee shall not be charged with knowledge of any
failure by the Collection Agent to comply with any obligations of the
Collection Agent contained herein or of any Event of Termination unless
a Responsible Official of the Trustee obtains actual knowledge of such
failure or such event or the Trustee receives written notice of such
failure or such event from the Collection Agent, the Agent, any Owner or
any Bank.
(d) The Trustee shall not be required to expend or risk its own
funds or otherwise incur financial liability in the performance of any of its
duties hereunder or in the exercise of any of its rights or powers if there are
reasonable grounds for believing that the repayment of such funds or indemnity
satisfactory to it against such risk or liability is not reasonably assured to
it and none of the provisions contained in this Agreement shall in any event
require the Trustee to perform, or be responsible for the manner of performance
of, any obligations of the Collection Agent under this Agreement.
(e) Except for actions expressly authorized by this Agreement,
the Trustee shall take no action reasonably likely to impair the interests of
the Agent (for the benefit of the Owners) in any Receivable now existing or
hereafter created or impair the value of any Receivable now existing or
hereafter created.
(f) The Trustee shall have no responsibility or liability for the
selection of, or investment losses on, Available Investments. The Trustee shall
have no liability in respect of losses incurred as a result of the liquidation
of any investment prior to its stated maturity or the failure of the party to
provide timely written investment direction.
(g) The Trustee shall, with respect to each Daily Report (upon
which the Trustee may conclusively rely and be fully protected in acting or re g
from acting in such reliance), (A) compare the Collections reported that day by
the Collection Agent to the actual Collections deposited to the Lock Box
Accounts and the Concentration Account, (B) perform each of the account
transfers set forth in the Daily Report as directed in writing by the Collection
Agent;
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(h) The Trustee shall with respect to each Purchaser Report (upon
which the Trustee may conclusively rely and be fully protected in acting or
refraining from acting in such reliance) examine such Purchaser Report for
indications of the occurrence of any Events of Termination arising from under
clause (h) of Section 7.01.
(i) Notwithstanding any other provision of this Agreement, upon
discovery by a Responsible Official of Trustee of any material discrepancy
between the amounts reported by the Collection Agent and the amounts calculated
as provided above, the Trustee shall promptly notify the Collection Agent and
the Agent thereof.
SECTION 11.02. Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 11.01:
(a) the Trustee may conclusively rely on and shall be fully
protected in acting on, or in refraining from acting in accord with, any
resolution, officer's certificate, certificate of auditors or any other
certificate, statement, instrument, opinion, report, notice, consent, order,
appraisal, bond or other paper or document believed by it in good faith to be
genuine and to have been signed or presented to it pursuant to this Agreement by
the proper party or parties;
(b) the Trustee may consult with counsel and, as a condition to
taking, suffering or omitting to take any action, may demand an opinion of
counsel and any such opinion of counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance with such opinion of counsel;
(c) the Trustee shall be under no obligation to exercise any of
the rights or powers vested 'm it by this Agreement, or to institute, conduct or
defend any litigation hereunder or in relation hereto, at the request, order or
direction of any of the Beneficiaries, unless such Beneficiaries shall have
offered to the Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities which may be incurred therein or thereby;
(d) subject to Section 11.0 1 (c), the Trustee shall not be
personally liable for any action taken, suffered or omitted by it in good faith
and believed by it to be authorized or within the discretion or rights or powers
conferred upon it by this Agreement;
(e) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
approval, bond or other paper or document unless requested in writing so to do
by the Agent;
(f) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys, custodians or nominees, and the Trustee shall not be responsible for
any misconduct or negligence on the part of, or for the supervision of any such
agent, attorney, custodian or nominee appointed with due care by it hereunder;
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(g) except as required by Section 11.01, the Trustee shall not be
required to make any initial or periodic examination of any documents or records
related to the Receivables for the purpose of establishing the presence or
absence of defects, the compliance by the Seller with its representations and
warranties or for any other purpose; and
(h) nothing in this Agreement shall be construed to require the
Trustee to act as a guarantor of the Collection Agent's performance.
SECTION 11.03. Trustee Not Liable for Recitals in Certificates or
Receivables. The Trustee assumes no responsibility for the correctness of the
recitals contained herein. Except as set forth in Section 11.12, the Trustee
makes no representations as to the validity or sufficiency of this Agreement or
of any Receivable or related document. The Trustee shall not be accountable for
the use or application of any funds paid to the Seller in respect of the
Receivables or deposited in or withdrawn from the Concentration Account, any
Lock Box Account, the Seller's Account, or any other account hereafter
established in accordance with the terms of this Agreement. The Trustee shall at
no time have any responsibility or liability for or with respect to the
legality, validity and enforceability of any security interest in any Receivable
or the perfection and priority of such security interest or the maintenance of
any such perfection and priority.
SECTION 11.04. Trustee May Own Purchased Interests. The Trustee
in its individual or any other capacity may become the owner or pledgee of
Purchased Interests and may otherwise deal, and transact banking business, with
the Collection Agent and the Seller with the same rights as it would have if it
were not the Trustee.
SECTION 11.05. Compensation and Indemnification: Trustee's
Expenses. (a) The Trustee shall be entitled to receive a monthly Trustee's fee
(which fee, to the extent permitted by applicable law, shall not be limited by
any provision of law, such fee being the "Trustee's Fee") in respect of each
Fiscal Month (or portion thereof from the Closing Date hereunder until the
Facility Termination Date, payable in arrears on each Settlement Date in an
amount agreed upon in writing by the Trustee and the Seller. The Trustee's Fee
shall be payable, first, from amounts distributed pursuant to Section 2.06,
second, to the extent not paid from such amounts, by the Seller, and third, to
the extent not paid from such amounts or by the Seller, by the Collection Agent.
When the Trustee incurs expenses or renders services in connection with
bankruptcy, insolvency, reorganization or similar proceedings affecting any
Person, such expenses (including the reasonable fees and expenses of its
counsel) and the compensation for such services are intended to constitute
expenses of administration under any bankruptcy law or law relating to
creditors' rights generally.
(b) Without limiting any of the rights the Trustee has under
Section 10.01 the Seller shall indemnify the Trustee in its individual capacity
and any of its officers, directors, employees and agents against any and all
loss, liability or expense (including reasonable attorneys' fees) incurred by it
in connection with the performance of its duties under this Agreement and the
other Purchase Documents except any loss, liability or expense resulting from
the gross negligence or willful misconduct of such Indemnified Party.
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(c) Expenses. The Seller will pay or reimburse the Trustee upon
its request on at least 5 Business Days' notice providing reasonable detail, and
if the Seller shall fail to do so, the Collection Agent will so pay or reimburse
the Trustee (with a right to reimbursement from the Seller), and if both the
Seller and the Collection Agent shall fail to do so, the Agent will have the
right, but not the obligation, to so pay or reimburse the Trustee (with a right
to reimbursement from the Seller), for all reasonable expenses, disbursements
and advances incurred or made by the Trustee in accordance with any of the
provisions of this Agreement or in connection with any amendment hereto
(including the reasonable fees and expenses of its agents, any co-trustee and
counsel and fees incurred in connection with an Event of Termination) except any
such expense, disbursement or advance as may arise from its gross negligence or
willful misconduct. The Seller's and Collection Agent's covenant provided in
this Section 11.05 shall survive the termination of this Agreement.
SECTION 11.06. Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times be an Eligible Institution. If the Trustee
publishes reports of condition at least annually, pursuant to law or to the
requirements of any supervising or examining authority, then, for the purpose of
this Section 1 1.06, the combined capital and surplus of such corporation shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section 11.06, the Trustee
shall resign immediately in the manner and with the effect specified in Section
11.07.
SECTION 11.07. Resignation or Removal of Trustee. (a) The Trustee
may at any time resign and be discharged from its obligations hereunder by
giving 30 days' written notice thereof to the Seller, the Agent and the
Collection Agent. Upon receiving such notice of resignation, the Collection
Agent shall promptly appoint a successor trustee acceptable to the Agent by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor trustee. If no
successor trustee shall have been so appointed and have accepted appointment
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 11.06 and shall fail to resign after
written request therefor by the Collection Agent or if at any time the Trustee
shall be legally unable to act, or shall be adjudged as bankrupt or insolvent,
or if a receiver of the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Collection Agent may remove the Trustee and promptly appoint a successor trustee
acceptable to the Agent by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor trustee.
(c) If at any time the Trustee shall fail to perform its
obligations under this Agreement, the Agent may remove the Trustee and direct
the Collection Agent to promptly appoint a successor trustee acceptable to the
Agent by written instrument, in duplicate, one copy
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of which instrument shall be delivered to the Trustee so removed and one copy to
the successor trustee; provided that if all other procedures fail and a
successor trustee has not accepted an appointment pursuant to this Section
11.07(c) within 30 days after the Trustee shall have received notice from the
Agent of its intention to remove such Trustee, the Trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee.
(d) Notwithstanding anything herein to the contrary, any
resignation or removal of the Trustee and appointment of a successor trustee
pursuant to any of the provisions of this Section 11.07 shall not become
effective until acceptance of appointment by the successor trustee as provided
in Section 11.08.
SECTION 11.08. Successor Trustee. (a) Any successor trustee
appointed as provided in Section 11.07 shall execute, acknowledge and deliver to
the Seller, the Collection Agent, the Agent and its predecessor Trustee an
instrument accepting such appointment hereunder, and thereupon the resignation
or removal of the predecessor Trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Trustee herein. The
predecessor Trustee after payment of all monies due and owing to it, shall
deliver to the successor trustee all documents or copies thereof and statements
held by it hereunder, and the Seller and the predecessor Trustee shall execute
and deliver such instruments and do such other things as may reasonably be
required for fully and certainly vesting and confirming in the successor trustee
all such rights, powers, duties and obligations.
(b) No successor trustee shall accept appointment as provided in
this Section 11.08 unless at the time of such acceptance such successor trustee
shall be eligible under the provisions of Section 11.06.
SECTION 11.09. Merger or Consolidation of Trustee. Any Person
into which the Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
the corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder, provided that such corporation shall be eligible under the
provisions of Section 11.06.
SECTION 11.10. Tax Returns. In the event any tax returns shall be
required to be filed by the Trustee in connection with any of the trust accounts
hereunder, the Collection Agent shall prepare or shall cause to be prepared any
such tax returns and shall remit such returns to the Trustee for signature at
least five days before such returns are due to be filed. The Trustee shall
promptly sign such returns and deliver such returns after signature to the
Collection Agent, and such returns shall be filed by the Collection Agent. In no
event shall the Trustee be liable for any liabilities, costs or expenses of the
Owners, the Banks or the Agent arising out of the application of any tax law,
including federal, state, foreign or local income or franchise taxes or any
other tax imposed on or measured by income (or any interest, penalty or addition
to tax with respect thereto or arising from a failure to comply therewith).
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SECTION 11.11. Right of Agent to Direct Trustee. The Agent shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee under any Purchase Document or
exercising any trust or power conferred on the Trustee under any Purchase
Document; provided, however, that, subject to Section 11.01, the Trustee shall
have the right to decline to follow any such direction if the Trustee after
receiving an opinion of counsel determines that the action so directed may not
lawfully be taken, or if the Trustee in good faith shall, by any Responsible
Official of the Trustee, determine that the proceedings so directed would be
illegal or involve it in personal liability.
SECTION 11.12. Representations and Warranties of Trustee. The
Trustee represents and warrants that:
(a) the Trustee is a banking corporation duly organized, validly
existing and in good standing under the laws of the State of New York, and has
the power to own its assets and to transact the business in which it is
presently engaged;
(b) the Trustee has the full power, authority and right to execute,
deliver and perform this Agreement, and has taken all necessary action to
authorize the execution, delivery and performance by it of this Agreement; and
(c) this Agreement has been duly executed and delivered by the Trustee
and constitutes a legal, valid and binding obligation of the Trustee enforceable
against the Trustee in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally and except as such
enforceability may be limited by general principles of equity, whether
considered in a suit at law or in equity).
SECTION 11.13. Maintenance of Office or Agency. The Trustee will
maintain at its expense in New York, New York an office or agency (the
"Corporate Trust Office") where its corporate mat office shall be administered
and where notices and demands to or upon the Trustee in respect of this
Agreement shall be served. The Trustee initially designates its office or agency
at Four Albany Street, New York, New York 10006, Attention: Corporate Trust and
Agency Group/Structured Finance, as such office. The Trustee will give prompt
written notice to the Seller, the Collection Agent and the Agent of any change
in the location of any such office or agency.
ARTICLE XII
CONSENT
SECTION 12.0 1. Consent to Assignment. Maxtor hereby
acknowledges notice of, and consents to, the assignment by the Seller under this
Agreement of all Additional Assigned Rights now existing or hereafter arising.
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SECTION 12.02. Agreements as to Additional Assigned Rights.
Maxtor and the Seller agree for the benefit of the Agent and the Owners as
follows:
(a) Maxtor shall make all payments to be made by it to the Seller
under or in connection with any Purchase Document, directly to the Agent
by payment to the account (account number 40517805) of the Agent
maintained at the office of Citibank, at 399 Park Avenue, New York, New
York, or otherwise in accordance with the instructions of the Agent,
such payments to be made to the Agent.
(b) All payments to be made by Maxtor to the Seller under or in
connection with any Purchase Document, shall be made by Maxtor
irrespective of, and without deduction for, any counterclaim, defense,
recoupment or set-off and shall be final, and Maxtor will not seek to
recover from the Agent or any Owner for any reason any such payment once
made.
(c) To the extent the Purchaser receives any payments relating to
the Additional Assigned Rights to which the Purchaser is not entitled,
the Purchaser shall remit such payments to the Seller or any other
Person designated by the Seller.
(d) The Agent shall be entitled, except to the extent limited by
agreement among the Seller, the Owners and the Agent, to exercise any
and all rights and remedies of the Seller under any Purchase Document to
which it is a party, including without limitation rights of the Seller
to make requests, demands for payment and other demands, determinations
and designations, to amend, supplement or modify, to give consents or
waivers, and to deliver notices to Maxtor, and to receive notices,
requests, reports and other information to be delivered by Maxtor, from
time to time thereunder; and Maxtor shall in all respects comply with
and perform in respect of each such exercise. Neither the Agent nor any
Owner shall have any obligation or liability with respect to any of the
Seller's obligations under any Purchase Document.
SECTION 12.03. Further Agreements. In order to induce the Owners
to purchase interests from time to time in Subject Receivables, Maxtor hereby
acknowledges and agrees as follows:
(a) On the date hereof and as of the Closing Date, Maxtor hereby
reaffirms for the benefit of the Agent and the Owners the representations and
warranties made by Maxtor in Section 3.01 of the Receivables Contribution and
Sale Agreement, in Section 5 of the Maxtor Agreement and in the Repurchase
Agreement, respectively.
(b) Each of the Purchase Documents to which Maxtor is a party is and on
the Closing Date will be (i) the legal, valid and binding obligation of each
party thereto enforceable against Maxtor and each other party thereto in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium or other laws affecting rights of creditors generally and to general
equitable principles, and (ii) in full force and effect, and is not subject to
any dispute, offset, counterclaim or defense whatsoever.
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(c) Maxtor will, at is expense, timely and fully perform and comply in
all material respects with, and cause each of the Seller and any Selling
Affiliates to timely and fully perform and comply in all material respects with,
all provisions, covenants and other promises required to be observed by Maxtor,
such Selling Affiliate or the Seller, as applicable, under- each Purchase
Document to which it is a party, maintain, and cause the Seller and any Selling
Affiliate to maintain, each Purchase Document to which it is a party in full
force and effect, enforce, and cause the Seller and any Selling Affiliate to
enforce, each Purchase Document to which it is a party in accordance with its
respective terms, take, and cause the Seller and any Selling Affiliate to take,
all such action to such end as may be from time to time reasonably requested by
the Agent, and make, and cause the Seller or any Selling Affiliate to make, to
any party to any Purchase Document to which it is a party such demands and
requests for information and reports or for action as Maxtor or the Seller,
respectively, are entitled to make thereunder and as may be from time to time
reasonably requested by the Agent.
(d) Maxtor will promptly and in any event within five Business Days
after its receipt or delivery thereof, deliver to the Agent copies of all
notices, requests, reports, certificates, and other documents and information
delivered or received by Maxtor from time to time under or in connection with
any Purchase Document.
(e) Maxtor will not (A) cancel or terminate any Purchase Document to
which it is a party or consent to or accept any cancellation or termination
thereof, (B) amend or otherwise modify any term or condition of any Purchase
Document to which it is a party or give any consent, waiver or approval
thereunder, (C) waive any default under or breach of any Purchase Document to
which it is a party or (D) take any other action under any Purchase Document to
which it is a party not required by the terms thereof that would impair the
value of any Additional Assigned Rights or the Seller's rights or interests
thereunder or the rights or interests of the Agent or the Owners hereunder or
thereunder, or permit the Seller or any Selling Affiliate to take any of the
actions set forth in clauses (A) through (D) above with respect to any Purchase
Document to which it is a party.
SECTION 12.04. Seller Remains Liable. Anything herein to the
contrary notwithstanding, (a) the Seller shall remain liable under each Purchase
Document to which it is a party to the extent set forth therein to perform all
of its duties and obligations thereunder to the same extent as if this Agreement
had not been executed, (b) the exercise by the Agent of any of the rights
hereunder shall not release the Seller from any of its duties or obligations
under each Purchase Document to which it is a party, and (c) neither the Agent
nor the Purchaser nor any other Indemnified Party shall have any obligation or
liability under any Purchase Document by reason of this Article XII, nor shall
the Agent or the Purchaser or any other Indemnified Party be obligated to
perform any of the obligations or duties of the Seller thereunder.
SECTION 12.05. Agent Appointed Attorney-in-Fact. The Seller
hereby irrevocably appoints the Agent the Seller's attorney-in-fact, with full
authority in the place and stead of the Seller and in the name of the Seller or
otherwise, from time to time in the Agent's discretion, to take any action and
to execute any instrument which the Agent may deem
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necessary or advisable to accomplish the purposes of the assignment hereunder,
including, without limitation:
(a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in connection with the Additional Assigned Rights,
(b) to receive, indorse and collect any drafts or other
instruments, documents and chattel paper in connection therewith, and
(c) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the
collection of any of the Additional Assigned Rights or otherwise to
enforce compliance with the terms and conditions of the Purchase
Documents or the rights of the Agent with respect to any of the
Additional Assigned Rights.
SECTION 12.06. Agent May Perform. If the Seller fails to perform
any agreement contained herein, the Agent may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Agent
incurred in connection therewith shall be payable by the Seller under Section
13.06(a).
SECTION 12.07. The Agents Duties. The powers conferred on the
Agent hereunder are solely to protect its interest in the Additional Assigned
Rights and shall not impose any duty upon it to exercise any such powers. Except
for the safe custody of any Additional Assigned Rights in its possession and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Additional Assigned Rights or as to the taking of any necessary
steps to preserve rights against any parties or any other rights pertaining to
any Additional Assigned Rights. The Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any Additional Assigned
Rights in its possession if such Additional Assigned Rights are accorded
treatment substantially equal to that which it accords its own property.
SECTION 12.08. Remedies. If any Event of Termination shall have
occurred and be continuing:
(a) The Agent may exercise any and all rights and remedies of the
Seller under or in connection with each Purchase Document to which the
Seller is a party or otherwise in respect of the Additional Assigned
Rights, including, without limitation, any and all rights of the Seller
to demand or otherwise require performance of any provision of any
Purchase Document.
(b) The Agent may exercise in respect of the Additional Assigned
Rights, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of an owner of
such Additional Assigned Rights to the extent of the interest therein
assigned under this Agreement under applicable law in effect in the
State of New York.
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(c) All payments received by the Seller in respect of the
Additional Assigned Rights shall be received in trust for the benefit of
the Agent, shall be segregated from other funds of the Seller and shall
be forthwith paid over to the Agent in the same form as so received
(with any necessary endorsement).
ARTICLE XIII
MISCELLANEOUS
SECTION 13.01. Amendments, Integration, Etc. No amendment or
waiver of any provision of this Agreement, and no consent to any departure by
the Seller herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Agent, each Owner and the Purchaser, and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. This Agreement contains a final
and complete integration of all prior expressions by the parties hereto with
respect to the subject matter hereof and shall constitute the entire agreement
among the parties hereto with respect to the subject matter hereof, superseding
all prior oral or written understandings.
SECTION 13.02. Notices, Etc. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including communication by telefax) and mailed, telefaxed or delivered, as to
each party hereto, at its address and telefax number set forth under its name on
the signature pages hereof or in the case of any Assignee, at its address set
forth in the notice delivered to the Agent pursuant to Section 9.01 (a) or at
such other address or telefax number as shall be designated by such party in a
written notice to the other parties hereto. All such notices and communications
shall, when mailed or telefaxed, be effective when delivered by mail or when
telefaxed, respectively, except that notices and communications to the Agent,
the Trustee and the Owners pursuant to Article II shall not be effective until
received by the Agent, the Trustee or the Owners, as the case may be.
SECTION 13.03. No Waiver; Remedies. No failure on the part of any
Owner, Indemnified Party, the Purchaser, the Agent, the Seller or the Trustee to
exercise, and no delay in exercising, any right under any Purchase Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right under any Purchase Document preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 13.04. Binding Effect; Assignability. This Agreement
shall be binding upon and inure to the benefit of the Seller, the Agent, the
Purchaser, the Trustee, each Owner and each Indemnified Party and their
respective successors and assigns, except that the Seller shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Agent. This Agreement shall create and constitute the
continuing obligation of the parties hereto in accordance with its terms, and
shall remain in full force and effect until the Collection Date; provided,
however, that rights and remedies with respect to the indemnification
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provisions of this Agreement shall be continuing and shall survive any
termination of this Agreement.
SECTION 13.05. Governing Law. This Agreement and the Assignments
shall be governed by, and construed in accordance with, the laws of the State of
California, except (i) to the extent that the perfection or the effect of
non-perfection of the interests of the Owners, or remedies hereunder, in respect
of the Seller Assets in respect thereof are governed by the laws of a
jurisdiction other than the State of California and (ii) for the rights, duties,
privileges, immunities and indemnities of the Trustee, which shall be governed
by the laws of the State of New York.
SECTION 13.06. Costs, Expenses and Taxes. (a) In addition to the
rights of indemnification granted to the Indemnified Parties under Article X
hereof, the Seller agrees to pay on demand all costs and expenses in connection
with the preparation, execution, delivery, periodic auditing (to the extent the
costs and expenses related thereto are required to be paid by the Seller
pursuant to Section 5.01 (c)), modification and amendment of the Purchase
Documents and the other documents to be delivered hereunder, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Agent, with respect thereto and with respect to advising the Agent as to its
rights and remedies under the Purchase Documents and the other documents to be
delivered hereunder. The Seller further agrees to pay on demand all costs and
expenses, if any (including, without limitation, reasonable counsel fees and
expenses), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of the Purchase Documents and the other
documents to be delivered hereunder, including, without limitation, reasonable
counsel fees and expenses in connection with the enforcement of rights under
this Section 13.06(a).
(b) In addition, the Seller shall pay when due (to the extent not
already included within the computation of the CP Rate) (i) any and all
commissions of placement agents and dealers in respect of the Commercial Paper
Notes of the Purchaser issued to fund the Purchase or maintenance of any
Purchased Interest, (ii) any and all costs and expenses of any issuing agent or
other Person responsible for the administration of the Purchaser's Commercial
Paper Note program in connection with the preparation, completion, issuance,
delivery or payment of Commercial Paper Notes issued to fund the Purchase or
maintenance of any Purchased Interest, and (iii) any and all stamp and other
taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing, recording or searching in respect of, or
enforcement, of the Purchase Documents and the other documents to be delivered
hereunder, and agrees to save each Indemnified Party harmless from and against
any and all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and fees (including, without limitation, sales taxes,
shipping charges or other similar taxes and charges due on merchandise or
services sold by the Seller, Maxtor or any Selling Affiliate to Obligors),
provided that each Owner will pay (or reimburse the Seller for) all property,
excise or similar taxes and any other taxes imposed by reason of ownership of
Subject Receivables, but only to the extent of the percentage interest therein
represented by the Purchased Interests.
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(c) The Seller also shall pay on demand all other costs, expenses
and taxes (excluding income taxes) incurred by each Owner or any general or
limited partner or shareholder of each such Owner ("Other Costs"), including,
without limitation, (i) any and all costs relating to all arrangements
contemplated hereby with any of the Lock Box Banks, (ii) the costs of auditing
the Purchaser's books by certified public accountants and of rating each Owner's
Commercial Paper Notes by independent financial rating agencies, the cost of
issuing each Owner's Commercial Paper Notes, (iii) the taxes (excluding income
taxes) resulting from each Owner's operations, (iv) the reasonable fees and
disbursements of counsel for each Owner with respect to advising as to rights
and remedies under Purchase Documents or the agreements and documents entered
into in connection therewith, the enforcement of the Purchase Documents or the
agreements and documents entered into in connection therewith, or advising as to
matters relating to each Owner's operations or (v) advising the Purchaser or any
general or limited partner or shareholder of the Purchaser as to the issuance of
the Purchaser's Commercial Paper Notes and acting in connection with such
issuance.
SECTION 13.07. No Proceedings. (a) The Seller and the Agent each
hereby agree that it will not institute against the Purchaser any proceeding of
the type referred to in Section 7.01(g) so long as any Commercial Paper Notes
issued by the Purchaser shall be outstanding or there shall not have elapsed one
year plus one day since the last day on which any such Commercial Paper Notes
shall have been outstanding.
(b) Each of the parties hereto hereby agrees that they will not
institute against the Seller any proceeding of the type referred to in Section
7.01(g).
SECTION 13.08. Confidentiality. Except to the extent otherwise
required by applicable law, each of the parties hereto agrees to maintain the
confidentiality of the Purchase Documents (and all drafts thereof) and not to
disclose any Purchase Document or such drafts to third parties (other than to
its directors, officers, employees, accountants or counsel); provided, however,
that the Agreement may be disclosed to third parties to the extent such
disclosure is (i) required by any applicable securities laws, (ii) made solely
to persons who are legal counsel for the purchaser or underwriter of such
securities, (iii) limited in scope to the provisions of Articles V, VII, X and,
to the extent defined terms are used in Articles V, VII and X, such terms
defined in Article I of this Agreement and (iv) made pursuant to a written
agreement of confidentiality in form and substance reasonably satisfactory to
the Agent.
SECTION 13.09. Intent of Agreement. It is the intention of this
Agreement that each Purchase and deposit to the Seller's Account shall convey to
the Owner, to the extent of its Purchased Interest, an undivided ownership
interest in the Seller Assets and that such transaction shall constitute a
purchase and sale and not a secured loan for all purposes other than for federal
income tax purposes. If, notwithstanding such intention, the conveyance of the
Purchased Interest from the Seller to any Owner shall ever be recharacterized as
a secured loan and not a sale, it is the intention of this Agreement that this
Agreement shall constitute a security agreement under applicable law, and that
the Seller shall be deemed to have granted to the Agent, for the benefit of the
Beneficiaries, a duly perfected first priority security interest in all of the
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Seller's right, title and interest in, to and under the Seller Assets, free and
clear of Adverse Claims.
SECTION 13. 10. Execution in Counterparts; Severability. This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall constitute one and
the same agreement. In case any provision in or obligation under this Agreement
or the Assignments should be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
MAXTOR RECEIVABLES
CORPORATION
By: /s/ Authorized Signatory
--------------------------------------
Title: President
510 Cottonwood Drive
Milpitas,
California, 95035
Attention: Raja Venkatesh
Telefax No.: (408) 432-4480
MAXTOR
CORPORATION
By: /s/ Authorized Signatory
--------------------------------------
Title: Vice President and
Chief Financial Officer
510 Cottonwood Drive
Milpitas,
California, 95035
Attention: Raja Venkatesh
Telefax No.: (408) 432-4480
CORPORATE RECEIVABLES
CORPORATION, as Purchaser
By: Citicorp North America, Inc., as
Attorney-in-Fact
By: Authorized Signatory
--------------------------------------
Vice President
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: President
Telefax No.: (914) 899-7015
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CITICORP NORTH AMERICA, INC.,
as Agent
By: /s/ Authorized Signatory
--------------------------------------
Vice President
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: Corporate Asset
Funding Department
Telefax No.: (914) 899-7015
BANKERS TRUST COMPANY.
as Trustee
By: /s/ Authorized Signatory
--------------------------------------
Title: LOUIS BODI
VICE PRESIDENT
4 Albany Street
New York, New York 10006
Attention: Corporate Trust and
Agency Group
Telefax: (212) 250-6439
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RECEIVABLES PURCHASE AND SALE AGREEMENT
Dated as of April 8, 1998
MAXTOR RECEIVABLES CORPORATION, a California corporation (the
"Seller"), MAXTOR CORPORATION, a Delaware corporation (together with any
successors thereto appointed in accordance with Article VI hereof, the
"Collection Agent"), the banks, financial institutions and other institutional
lenders listed on the signature pages hereof (together with their successors and
assigns, each a "Secondary Purchaser" and collectively, the "Secondary
Purchasers"), CITICORP NORTH AMERICA, INC., a Delaware corporation ("CNAI"), as
agent for the Secondary Purchasers and the other Owners (as defined below) (the
"Agent") and BANKERS TRUST COMPANY, a New York banking corporation, as trustee
(the "Trustee"), agree as follows:
PRELIMINARY STATEMENTS:
(1) Certain terms which are capitalized and used throughout this
Agreement are defined in Article I of this Agreement.
(2) Maxtor Corporation, a Delaware corporation ("Maxtor"),
Corporate Receivables Corporation, a California corporation (the "Purchaser")
and CNAI, as Agent, were each party to the Receivables Purchase and Sale
Agreement dated as of March 30, 1996 (the "Original Agreement"), whereby Maxtor
had from time to time sold to the Purchaser, and the Purchaser had from time to
time purchased from Maxtor, "Purchased Interests" (as defined in the Original
Agreement).
(3) On the Closing Date, the Purchaser and Maxtor each will have
entered into, and fully performed, the Receivables Repurchase Agreement dated as
of April 8, 1998 (as amended, supplemented or otherwise modified from time to
time, the "Repurchase Agreement"), whereby Maxtor will have repurchased each
"Purchased Interest" previously purchased by the Purchaser pursuant to the
Original Agreement.
(4) The Seller will on the Closing Date purchase from Maxtor
"Receivable Assets" pursuant to a Receivables Contribution and Sale Agreement
between the Seller and Maxtor dated as of April 8, 1998. The Seller intends to
sell interests in "Receivable Assets" to the Purchaser represented by "
Purchased Interests" under the Receivables Purchase and Sale Agreement between
the Seller, the Purchaser, the Agent, the Trustee, and Maxtor dated as of April
8, 1998 (as amended, supplemented or modified from time to time in accordance
with its terms, the "Receivables Purchase and Sale Agreement").
(5) In addition, the Seller intends to sell interests in Subject
Receivables to the Secondary Purchasers represented by Purchased Interests on
the terms and subject to the conditions of this Agreement.
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(6) The Trustee has agreed to (i) maintain certain accounts in
which Collections are held, (ii) at the written direction of the Collection
Agent, distribute such Collections, (iii) review the Purchaser Reports and the
Daily Reports prepared by the Collection Agent and (iv) perform various other
functions in connection therewith, in each case on the terms and conditions
hereinafter set forth.
(7) The parties hereto have agreed, on the terms and conditions
hereinafter set forth, to provide for, among other things, the sale by the
Seller to the Secondary Purchasers of such Purchased Interests.
(7) CNAI has been requested and is willing to act as Agent.
NOW, THEREFORE, the parties agree, effective as of the Closing
Date and subject to the satisfaction of the conditions precedent set forth in
Section 3.01 hereof, as follows:
ARTICLE I
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):
"Additional Assigned Rights" means all of the Seller's right,
title and interest in, to and under the following:
(i) each Purchase Document to which it is a party;
(ii) all rights to receive moneys due and to become due
under or pursuant to each such Purchase Document;
(iii) all rights to receive proceeds of any indemnity,
warranty or guaranty with respect to each such Purchase
Document;
(iv) claims for damages arising out of or for breach of or
default under each such Purchase Document;
(v) the right to perform under each such Purchase Document
and to compel performance and otherwise exercise all remedies
thereunder; and
(vi) all proceeds of any and all of the foregoing Additional
Assigned Rights (including, without limitation, proceeds which
constitute property of the types described in clauses (i)
through (v)).
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"Adjusted Eurodollar Rate" means, with respect to any Purchased Interest
for any period, an interest rate per annum equal to the rate per annum obtained
by dividing (i) the rate per annum at which deposits in U.S. Dollars are offered
by the principal office of Citibank in London, England to prime banks in the
London interbank market at 11:00 a.m. (London time) two Business Days before the
first day of such period in an amount substantially equal to the amount to which
the "Adjusted Eurodollar Rate" is to be applied and for a period equal to such
period by (ii) a percentage equal to 100% minus the Eurodollar Reserve
Percentage for such period.
"Adverse Claim" means any claim of ownership or any lien, security
interest or other charge or encumbrance, or other type of preferential
arrangement having the effect of a lien or security interest.
"Affiliate" means (i) as to any Person, any other Person that (x)
directly or indirectly, is in control of, is controlled by or is under common
control with such Person (provided that if such Person is a proposed Selling
Affiliate at the time of determination, a Person shall be deemed to "control"
another Person only if such Person, directly or indirectly, beneficially owns or
holds at least 51 % of the issued and outstanding shares of the capital stock of
such other Person), or (y) is a director or officer of such Person or of any
other Person that, directly or indirectly, is in control of, is controlled by or
is under common control with such Person, and (ii) as to CNAI or the Purchaser,
shall also include the Purchaser and CNAI, respectively, and any other Person
who has. a relationship to CNAI comparable to that of the Purchaser.
"Affiliated Obligor" means any Obligor which is an Affiliate of another
Obligor.
"Agent" has the meaning specified in the recital of parties to this
Agreement.
"Agent's Account" means the special account (account number 40517805) of
the Agent maintained at the office of Citibank, ABA No.: 021000089; at 399 Park
Avenue, New York, New York; Attention: Robert DiLeo, Re: Maxtor Receivables
Corporation.
"Allocation Percentage" means, at any time, the sum of the Purchased
Interests (expressed in percentage terms) at such time.
"Alternate Base Rate" means, with respect to any Purchased Interest for
any period, a fluctuating interest rate per annum in effect from time to time,
which rate per annum shall at all times be equal to the sum of (1) 2%, and (2)
the highest of:
(i) the rate of interest announced publicly by Citibank in New
York, New York from time to time as Citibank's base rate;
(ii) the sum (adjusted to the nearest 1/4 of 1% or, if there is
no nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (A) 1/2 of 1%
per annum, plus (B) the rate obtained by dividing (1) the latest
three-week moving average of secondary market morning offering rates in
the United States for three-month certificates of deposit of major
United States money market banks, such three-week moving average
(adjusted to the basis of a year of
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360 days) being determined weekly on each Monday (or, if such day is not
a Business Day on the next succeeding Business Day) for the three-week
period ending on the previous Friday by Citibank on the basis of such
rates reported by certificate of deposit dealers to and published by the
Federal Reserve Bank of New York or, if such publication shall be
suspended or terminated, on the basis of quotations for such rates
received by Citibank from three certificate of deposit dealers of
recognized standing selected by Citibank, by (2) a percentage equal to
100% minus the average of the daily percentages specified during such
three-week period by the Board of Governors of the Federal Reserve
System (or any successor) for determining the maximum reserve
requirement (including, but not limited to, any emergency, supplemental
or other marginal reserve requirement) for Citibank with respect to
liabilities consisting of or including (among other liabilities)
three-month U.S. Dollar non-personal time deposits in the United States,
plus (C) the average during such three-week period of the annual
assessment rates estimated by Citibank for determining the then current
annual assessment payable by Citibank to the Federal Deposit Insurance
Corporation (or any successor) for insuring U.S. Dollar deposits of
Citibank in the United States; and
(iii) 1/2 of 1% per annum above the fluctuating interest rate
per annum equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or, if
such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average of the
quotations for such day for such transactions received by Citibank from
three Federal funds brokers of recognized standing selected by it.
"Amortization Period" means the period beginning on the Termination Date
and ending upon the payment in full to each Owner of each Purchased Interest of
the Capital with respect thereto, all accrued and unpaid yield thereon and all
other amounts owed to any Beneficiaries under any Purchase Document.
"Arrangement Fee" has the meaning specified in Section 2.08.
"Assignee" means any Person as the assignee of all or any portion of any
Purchased Interest pursuant to Section 9.01.
"Assignee Rate" means, with respect to any Purchased Interest for any
period, an interest rate per annum equal to the Adjusted Eurodollar Rate plus
3%; provided, however, that if (i) it shall become unlawful for any Bank to
obtain funds in the London interbank market in order to purchase, fund or
maintain any Purchased Interest hereunder or deposits in dollars (in the
applicable amounts) are not being offered by banks in the London interbank
market, or (ii) any Bank is unable to establish the Adjusted Eurodollar Rate for
any applicable period due to the amount of applicable Capital to which the
Adjusted Eurodollar Rate is to be applied, the period in respect of which the
Adjusted Eurodollar Rate is to be applied, or circumstances affecting the London
interbank market generally or (iii) a majority of Owners notifies the Seller and
the Agent of their determination that the Adjusted Eurodollar Rate will not
adequately reflect the cost of funding or maintaining any Purchased Interest
hereunder (until a majority of Owners shall have notified the Seller and the
Agent that such majority has determined that the Adjusted Eurodollar Rate will
adequately
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reflect such cost), then, in each case, the Assignee Rate shall be the Alternate
Base Rate in effect from time to time; provided further that if (i) any Purchase
is made on a day which is not the first day of an Interest Period, and (ii) any
Purchase is made without the Agent having received notice in writing thereof by
11:00 a.m. (New York City time) on the third Business Day prior to the date of
such Purchase, then, in each case, the Assignee Rate shall, in respect of the
Purchased Interest so purchased, be the Alternate Base Rate in effect from time
to time; provided that following the occurrence and during the continuation of
an Event of Termination, the "Assignee Rate" shall be the applicable interest
rate per annum determined pursuant to the provisions set forth above plus 2% per
annum.
"Assignment" means an assignment by the Seller to the Agent in
substantially the form of Exhibit A hereto, evidencing ownership of a Purchased
Interest.
"Available Investments" means (i) short-term obligations of the United
States or any agency thereof, (ii) commercial paper issued from time to time by
the Purchaser, and any commercial paper having, at the time of acquisition
thereof, a rating of A-1 or better from S&P or P-1 from Moody's, (iii) money
market mutual funds registered under the Investment Company Act of 1940, as
amended, having a rating at the time of such investment, in the highest
investment category granted by S&P and Moody's (including, without limitation,
funds for which the Trustee or any of its Affiliates is investment manager or
investment adviser) and (iv) in connection with any Purchased Interest, other
promissory notes, certificates of deposit or other debt instruments selected by
the Owner of such Purchased Interest and approved by the Agent.
"Average Maturity" means, on any day, that period (expressed in days)
equal to the average maturity of the Subject Receivables as shall be calculated
by the Collection Agent as set forth in the most recent Purchaser Report in
accordance with the provisions thereof; provided, however, that, if the Agent,
upon consultation with Maxtor, shall in its reasonable judgment disagree with
any such calculation, the Agent may recalculate the Average Maturity for such
day.
"Banks" means the banks and financial institutions and other
institutional lenders (other than the Agent) parties to this Agreement, together
with their successors and assigns.
"Beneficiaries" means the Trustee, the Purchaser, the Banks, the Owners,
the Participants and the Agent.
"Breakage Costs" means, with respect to a Bank and for each reduction of
Capital for a Purchased Interest other than such reductions occurring on a
Settlement Date, an amount equal to the sum of (i) the additional interest at
the Assignee Rate (calculated without taking into account any breakage costs)
which would have accrued on an amount equal to the amount of such reduction, or
its pro rata portion thereof, from the time of such reduction through the last
day of the period for which the Adjusted Eurodollar Rate has been set minus (ii)
the income
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received by such Bank through the last day of such period from investing the
proceeds of such reductions, or its pro rata portion of such proceeds, plus
(iii) any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank to fund or
maintain its share of such Capital; provided that, if the Assignee Rate at the
time of such reduction is determined by reference to the Alternate Base Rate,
then the amount under this clause shall be deemed to be zero.
"Business Day" means any day on which banks are not authorized or
required to close in New York City and, in connection with the Adjusted
Eurodollar Rate, on which dealings are carried on in the London interbank
market.
"Capital" of any Purchased Interest means, at any time, the original
amount paid to the Seller for such Purchased Interest at the time of its
acquisition by the Secondary Purchasers pursuant to Sections 2.01 and 2.02, in
each case reduced from time to time by Collections distributed on account of
such Capital pursuant to Section 2.06; provided that if such Capital shall have
been reduced by any distribution and thereafter all or a portion of such
distribution is rescinded or must otherwise be returned for any reason, such
Capital shall be increased by the amount of such rescinded or returned
distribution, as though it had not been made.
"Citibank" means Citibank, N.A., a national banking association.
"Closing Date" means the date on which the initial Purchase is made
under the Receivables Purchase and Sale Agreement.
"CNAI" has the meaning specified in the recital of parties to this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated and rulings issued thereunder.
"Collection Agent" has the meaning specified in the recital of parties
to this Agreement.
"Collection Agent Fee" has the meaning specified in Section 2.08.
"Collection Date" means the date following the earlier to occur of (i)
the Settlement Date on which the aggregate Capital for all Purchased Interests
shall have been reduced to zero and each of the Indemnified Parties shall have
received all Yield, Collection Agent Fees, Trustee's Fee and other fees and
other amounts payable to it hereunder and under the other Purchase Documents,
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,
Maxtor and the Selling Affiliates, respectively, shall have paid in fall all
amounts owed by them hereunder and under the other Purchase Documents prior to
such date.
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"Collection Delay Period" means ten (10) Business Days or such other
number of days as the Agent may reasonably select upon three (3) Business Days'
notice to the Seller.
"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 2.05(f), 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 Sections 6.06 and 6.07.
"Company" means Hyundai Heavy Industries Co., Ltd., a company
incorporated and existing under the laws of the Republic of Korea.
"Company/Maxtor Agreement" means an agreement in substantially the form
of Exhibit D-1 hereto, duly executed and delivered by the parties thereto, as
such agreement may from time to time be amended, supplemented or otherwise
modified pursuant to the terms thereof and hereof.
"Company/Seller Agreement" means an agreement in substantially the form
of Exhibit D-2 hereto, duly executed and delivered by the parties thereto, as
such agreement may be amended, supplemented or otherwise modified pursuant to
the terms thereof and hereof.
"Concentration Account" has the meaning specified in Section 6.06(a).
"Concentration Account Bank" has the meaning specified in Section
6.06(a).
"Concentration Limit" means, for any Designated Obligor at any time, a
figure equal to the greater of: (a) 5%, and (b) the amount specified by the
Agent to the Seller in writing from time to time; provided that, the Agent may
cancel any "Concentration Limit" at any time upon three Business Days' notice to
the Seller; provided further that in the case of a Designated Obligor and any
Affiliated Obligor, the "Concentration Limit" for such Obligor shall be
calculated as if such Obligor and such Affiliated Obligor are one Obligor.
"Consent and Agreement" means a consent and agreement of a Selling
Affiliate, in form and substance reasonably satisfactory to the Agent, with
respect to the Selling Affiliate Receivables Contribution and Sale Agreement of
such Selling Affiliate and the rights and interests of the Seller with respect
thereto in which an interest is granted hereunder, as such consent and agreement
may from time to time be amended, supplemented or otherwise modified pursuant to
the terms thereof.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
Debt, lease, dividend, letter of credit or other obligation of another Person,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed (otherwise than for collection or deposit in the ordinary
course of business), co-made, or discounted or sold with recourse by that
Person, or in respect of which
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that Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation for which that Person is in effect liable
through any agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
the solvency or any balance sheet, income or other financial condition of the
obligor of such obligation, or to make payment for any products, materials or
supplies or for any transportation, services or lease regardless of the
non-delivery or non-furnishing thereof, in any case if the purpose or intent of
such agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected (in whole or in part)
against loss in respect thereof. The amount of any Contingent Obligation shall
be equal to the amount of the obligation so guaranteed or otherwise supported.
"Contract" means an agreement between Maxtor 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, for
Receivables with respect to which "Purchased Interests" have been repurchased by
Maxtor pursuant to the Repurchase Agreement, as otherwise approved by the Agent
under the Original Agreement), 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).
"Corporate Trust Office" has the meaning specified in Section 11.13.
"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 Receivables Contribution and Sale
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).
"Cure Account" has the meaning specified in Section 6.07.
"Cure Funds" means Collections which, from time to time, are deposited
into the Cure Account.
"Cure Period" means the period beginning on and including a Pool
Non-compliance Date and ending on but excluding the earlier of (a) the first
date thereafter on which the Net Subject Receivables Balance equals or exceeds
the Required Net Subject Receivables Balance and (b) the fifth consecutive
Business Day following the occurrence of such Pool Non-compliance Date.
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"Daily Report" means an Officer's Certificate of the Collection Agent
substantially in the form of Exhibit I hereto.
"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" means, as of any date, the ratio (expressed as a
percentage) that is obtained by dividing (i) the aggregate Outstanding Balance
of all Receivables that became Defaulted Receivables during the Fiscal Month
most recently ended on or before such date by (ii) the aggregate Outstanding
Balance (measured for each Receivable at the time of acquisition) of all
Receivables that were acquired by the Seller during the fourth Fiscal Month
immediately preceding the Fiscal Month most recently ended on or before such
date, provided that the "Default Ratio" with respect to any date prior to the
Closing Date shall be set forth on Schedule A to the Purchaser Report delivered
pursuant to Section 3.01 (z).
"Default Termination Ratio" means, as of any date, the ratio (expressed
as a percentage) that is obtained by dividing (i) the aggregate Outstanding
Balance of all Defaulted Receivables on such date by (ii) the aggregate
Outstanding Balance of all Receivables as of such date, provided that the
"Default Termination Ratio" with respect to any date prior to the Closing Date
shall be set forth on Schedule A to the Purchaser Report delivered pursuant to
Section 3.01(z).
"Defaulted Receivable" means a Receivable:
(i) as to which any payment, or part thereof, remains unpaid for
91 days or more from the original due date for such payment;
(ii) as to which the Obligor thereof has taken any action, or
suffered any event to occur, of the type described in Section 7.01 (g);
or
(iii) which, consistent with the applicable Credit and
Collection Policy, would be written off the Seller's, Maxtor's or any
Selling Affiliate's books, as applicable, as uncollectible.
"Delinquency Ratio" means, as of any date, the ratio (expressed as a
percentage) that is obtained by dividing (i) the aggregate Outstanding Balance
of all Receivables that were Delinquent Receivables on such day by (ii) the
aggregate Outstanding Balance of all Receivables on such day; provided that the
"Delinquency Ratio" with respect to any date prior to the Closing Date shall be
set forth on Schedule A to the Purchaser Report delivered pursuant to Section
3.01 (z).
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"Delinquent Receivable" means a Receivable that is not a Defaulted
Receivable and:
(i) as to which any payment, or part thereof, remains unpaid for
31 days or more from the original due date for such payment; or
(ii) which, consistent with the applicable Credit and Collection
Policy, would be classified as delinquent by the Seller, Maxtor or any
Selling Affiliate, as applicable.
"Deposit Date" means each Business Day on which any Collections are
deposited in the Concentration Account.
"Designated Obligor" means, at any time, each Obligor; provided,
however, that any Obligor shall cease to be a Designated Obligor upon at least
three Business Days' notice by the Agent to the Seller, or by the Seller to the
Agent.
"Dilution Horizon Factor" means, as of any date, the fraction (i) the
numerator of which is the aggregate Outstanding Balance (measured for each
Receivable at the time of acquisition) of all Eligible Receivables and Foreign
Receivables acquired by the Seller during the two Fiscal Months most recently
ended on or before such date and (ii) the denominator of which is the
Outstanding Balance of all Eligible Receivables as of the last day of the Fiscal
Month most recently ended on or before such date; provided that the "Dilution
Horizon Factor" with respect to any date prior to the Closing Date shall be set
forth on Schedule A to the Purchaser Report delivered pursuant to Section 3.01
(z).
"Dilution Ratio" means, as of any date, a fraction (expressed as a
percentage), the numerator of which is (i) the aggregate Dilutions recorded
during the Fiscal Month most recently ended on or before such date, and the
denominator of which is (ii) the aggregate Outstanding Balance (measured for
each Receivable at the time of acquisition) of all Receivables that were
acquired by the Seller during the second Fiscal Month most recently ended on or
before such date; provided that the "Dilution Ratio" with respect to any date
prior to the Closing Date shall be set forth on Schedule A to the Purchaser
Report delivered pursuant to Section 3.01 (z).
"Dilution Reserve" or "DR" means, on any date, an amount equal to:
DR = NSRB x DRP
where: NSRB = Net Subject Receivables Balance as of the
close of such Business Day
DRP = The Dilution Reserve Percentage, as of the
close of business of the Collection Agent on
such date.
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"Dilution Reserve Percentage" means, as of any date, the product of (A)
the sum of (i) the product of (x) one and one-half (1.5) (y) the average of the
Dilution Ratios calculated for each of the twelve (12) Fiscal Months most
recently ended on or before such date and (ii) the Dilution Volatility Factor as
of such date, and (B) the Dilution Horizon Factor as of such date.
"Dilution Volatility Factor" means, as of any date, a percentage equal
to the product of (A) the amount by which (i) the highest Dilution Ratio
calculated for any Fiscal Month during the 12 Fiscal Month period most recently
ended on or before such date exceeds (ii) the average of the Dilution Ratio
calculated for each Fiscal Month during such period, and (B) the ratio of (i)
the highest Dilution Ratios calculated for any Fiscal Month during such period
to (ii) the average of the Dilution Ratios calculated for each Fiscal Month
during such period.
"Dilutions" means, for any period, the aggregate amount of any
reductions or cancellations of the Outstanding Balance of the Subject
Receivables for any reason other than (i) the Obligors in respect thereto having
made payments thereon; or (ii) the Seller having written off such Subject
Receivables in accordance with the Credit and Collection Policy.
"Dynamic Loss Reserve Percentage" means, as of any date, the product of
(i) the highest average of Default Ratios for any period of three (3)
consecutive Fiscal Months, ending during the preceding twelve (12) Fiscal
Months, (ii) two (2), and (iii) the Loss Horizon Ratio as of such date.
"Eligible Institution" means a depository institution organized under
the laws of the United States of America or any state thereof or the District of
Columbia (or any domestic branch of a foreign bank authorized under any such
laws), (a) whose senior long-term unsecured debt obligations are rated at least
A- or better by S&P and A3 or better by Moody's, and (b) which is subject to
regulation regarding fiduciary funds on deposit substantially similar to 12
C.F.R. Section 9.10(b), if applicable, and (c) which has a combined capital and
surplus of at least $100,000,000.
"Eligible Receivable" means, at any time, 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 at the time of any Purchase of an
interest therein under this Agreement is a Designated Obligor;
(iii) the Obligor of which at the time of any Purchase of an
interest therein under this Agreement is not the Obligor of Defaulted
Receivables in an aggregate amount in excess of 10% of the aggregate
Outstanding Balance of all Subject Receivables of such Obligor;
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(iv) which at the time of any Purchase of an interest therein
under this Agreement is not a Defaulted Receivable or Delinquent
Receivable except for Delinquent Receivables at the time of the initial
purchase hereunder which were "Delinquent Receivables" under the
Original Agreement;
(v) which, according to the Contract related thereto, is
required to be paid in full either (x) within no more than 90 days, of
the original billing date;
(vi) 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;
(vii) 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;
(viii) 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 any Purchased Interest;
(ix) which is denominated and payable only in U.S. dollars in
the United States;
(x) 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 date of acquisition thereof by the Seller 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, Maxtor or the Selling
Affiliate, as applicable, 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);
(xi) which, together with the Contract related thereto, on the
date of acquisition thereof by the Seller 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;
(xii) with respect to which performance (other than by the
Obligor thereof, or by the Seller, Maxtor or any Selling Affiliate, as
applicable, under any related warranty to the extent not required to
have been performed by the Seller, Maxtor or such Selling Affiliate by
the time of determination) under the related Contract has been
completed;
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(xiii) which is, concurrently with the time of the acquisition
thereof by the Seller, legally and beneficially owned by the Seller free
and clear of any Adverse Claim except as created hereunder;
(xiv) which (A) on the date of the acquisition thereof by the
Seller 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 such date; and
(xv) as to which, at least five Business Days prior to the date
of acquisition thereof by the Seller, 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 Secondary Purchasers 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.
"ERISA Affiliate" means any Person who for purposes of Title IV of ERISA
is a member of the Seller's, Maxtor's or any Selling Affiliate's controlled
group, or under common control with the Seller, Maxtor or any Selling Affiliate,
within the meaning of Section 414 of the Code.
"ERISA Event" means (i) the occurrence with respect to a Plan of a
reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day
notice requirement with respect thereto has been waived by the PBGC; (ii) the
provision by the administrator of any Plan of a notice of intent to terminate
such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice
with respect to a plan amendment referred to in Section 4041 (e) of ERISA);
(iii) the cessation of operations at a facility of the Seller, Maxtor or any
Selling Affiliate or any ERISA Affiliate of any thereof in the circumstances
described in Section 4062(e) of ERISA; (iv) the withdrawal by the Seller, Maxtor
or any Selling Affiliate or any ERISA Affiliate of any thereof from a Multiple
Employer Plan during a plan year for which it was a substantial employer, as
defined in Section 4001(a)(2) of ERISA; (v) the conditions set forth in Section
302(f)(1)(A) and (B) of ERISA to the creation of a lien upon property or rights
to property of the Seller, Maxtor or any Selling Affiliate or any ERISA
Affiliate of any thereof for failure to make a required payment to a Plan are
satisfied; (vi) the adoption of an amendment to a Plan requiring the provision
of security to such Plan, pursuant to Section 307 of ERISA; or (vii) the
institution by the PBGC of proceedings to terminate a Plan, pursuant to Section
4042 of ERISA, or the occurrence of any event or condition described in Section
4042 of ERISA that could constitute grounds for the termination of, or the
appointment of a trustee to administer, a Plan.
"Eurodollar Increased Costs" means an increase in the cost to any Owner
of agreeing to purchase or purchasing, or maintaining the ownership of, any
Purchased Interest in respect of which Yield is computed by reference to the
Adjusted Eurodollar Rate due to either (i) the
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<PAGE> 97
introduction of or any change (other than any change by way of imposition or
increase of the Eurodollar Reserve Percentage) in or in the interpretation of
any law or regulation, or (ii) the compliance with any guideline or request from
any central bank or other governmental authority (whether or not having the
force of law).
"Eurodollar Reserve Percentage" means, with respect to any Purchased
Interest for any period, the reserve percentage applicable two Business Days
before the first day of such period under regulations issued from time to time
by the Board of Governors of the Federal Reserve System (or any successor) (or,
if more than one such percentage shall be so applicable, the daily average of
such percentages for those days in such period during which any such percentage
shall so be applicable) for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve requirement)
for Citibank with respect to liabilities or assets consisting of or including
"eurocurrency liabilities" as that term is used in Regulation D, as in effect
from time to time, of the Board of Governors of the Federal Reserve System (or
with respect to any other category of liabilities that includes deposits by
reference to which the Adjusted Eurodollar Rate is determined) having a term
equal to such period.
"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(b)(iv)
to be satisfied, provided, that the Seller is promptly notified of any such
failure (if such failure or event occurs as a result of a deemed rating) of any
condition set forth in Section 3.02(b)(iv).
"Event of Termination" has the meaning specified in Section 7.01.
"Facility" means the Commitment of each Secondary Purchaser to purchase
from the Seller Purchased Interests from time to time pursuant to the terms
hereof.
"Facility Fee" has the meaning specified in Section 2.08.
"Facility Termination Date" means the earlier of April 6, 1999 or the
date of termination of the Facility pursuant to Section 2.03 or Section 7.01.
"Fee Letter" means the letter agreement regarding additional fees, dated
the date hereof, between the Seller and the Agent, as such letter agreement may
from time to time be amended, modified or supplemented pursuant to the terms
thereof.
"Financial Officer" means, with respect to any Person, the chief
financial officer, treasurer, controller or other officer or member of
management of such Person with significant responsibility for the financial
affairs of such Person.
"Fiscal Month" means an accounting period of such number of consecutive
days commencing on the day after the day as of which Maxtor closes its books of
account for a month and ending on the day as of which Maxtor next closes its
books of account for a month, as Maxtor may from time to time specify in writing
to the Agent; provided that 12 of such consecutive accounting periods shall
constitute a fiscal year of Maxtor.
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"GAAP" means generally accepted accounting principles in the United
States of America, consistently applied, in effect from time to time.
"HC" means Hyundai Corporation, a company duly organized under the laws
of the Republic of Korea.
"HEA" means Hyundai Electronics America, a California corporation.
"HEI" means Hyundai Electronics Industries Co., Ltd., a company
incorporated and existing under the laws of the Republic of Korea.
"HMM" means Hyundai Merchant Marine Co., Ltd., a company duly organized
under the laws of the Republic of Korea.
"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 Country" means a Tier I Foreign Country or a Tier II
Foreign Country.
"Included Foreign Receivable" means, at any time, a Receivable of an
Obligor located in any Included Foreign Country which is not an Eligible
Receivable but would qualify as an Eligible Receivable except that the Obligor
of such a Receivable is not a United States resident.
"Indemnified Party" means the Secondary Purchasers, any Bank, CNAI, the
Trustee, any Owner, any Participant, the Agent, or any Affiliate of any thereof
and their respective officers, directors, employees and agents.
"Insufficiency" means, with respect to any Plan, the amount, if any, of
its unfunded benefit liabilities, as defined in Section 4001 (a)(18) of ERISA.
"Interest Period" means:
(i) with respect to the Alternate Base Rate, the period from the
Closing Date to the end of the first Settlement Period ending after the
Closing Date and thereafter a period equal to each Settlement Period,
and
(ii) with respect to the Adjusted Eurodollar Rate, the period
from the Closing Date to the first Settlement Date after the Closing
Date and thereafter a period from each Settlement Date to the first or,
upon the request of the Seller and with the consent of the Agent, second
or third next succeeding Settlement Date; provided, however, that, with
respect to any Interest Period ending on such second or third next
succeeding Settlement Date, for purposes of calculating "Yield" and the
"Yield/Fee Reserve" for any Purchased Interest with respect to
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<PAGE> 99
any Settlement Date occurring prior to the end of such Interest Period,
the "Interest Period" shall be deemed for purposes of such calculations
to be the period from the previous Settlement Date to such Settlement
Date.
"Limited Foreign Country" means any Included Foreign Country designated
as a "Limited Foreign Country" in a Limited Foreign Country Notice which (i) is
delivered by the Agent to the Seller at least three Business Days prior to the
effectiveness of such designation at any time on or after any date on which (A)
the long-term public senior debt securities of such Included Foreign Country
shall not have a rating by S&P and Moody's, respectively, at least as high as
the rating of such debt securities by S&P and Moody's, respectively, on the date
hereof or, if later, the date such Limited Foreign Country became an Included
Foreign Country hereunder, (B) the Agent shall have determined that the
Secondary Purchasers or any other applicable Owner, as the case may be, does not
have a valid and perfected first priority ownership interest in any Subject
Receivable owed by any Obligor which is a resident of such Included Foreign
Country enforceable under the laws of such Included Foreign Country or the Agent
shall have determined that it, for the benefit of the Beneficiaries, does not
have a valid and perfected first priority security interest in such Subject
Receivable, (C) any of the Company's long-term public senior debt securities are
not rated at least BB+ by S&P and at least Bal by Moody's or, if such securities
are not rated by S&P and Moody's, any of such securities do not have a deemed
rating of at least BBB- and Baa3, as determined by the Agent in its sole
discretion, (D) either S&P or Moody's shall have requested such designation or
(E) there shall have been a material adverse change in the consolidated
financial condition, or the consolidated results of the operations of Maxtor and
its subsidiaries since December 30, 1996 except as and to the extent projected
or otherwise disclosed in Maxtor's quarterly reports on Form 10-Q for the fiscal
quarters ending March 29, 1997, June 28, 1997 and September 27, 1997 or in
Schedule V hereto, and (ii) specifies the reason for such designation.
"Limited Foreign Country Limit" means, with respect to any Limited
Foreign Country, the lesser of (i) a limit (which may be zero), on the aggregate
Outstanding Balance of Subject Receivables which are Included Foreign
Receivables owed by Obligors which are residents of such Limited Foreign
Country, established pursuant to a Limited Foreign Country Notice and (ii) a
limit on the aggregate Outstanding Balance of Subject Receivables which are
Included Foreign Receivables owed by Obligors which are residents of Tier II
Foreign Countries equal to the product of (a) the percentage referred to in
clause (a) of the definition of "Concentration Limit" multiplied by (b) the Net
Subject Receivables Balance as of such date.
"Limited Foreign Country Notice" means a written notice by the Agent to
the Seller delivered in accordance with the definition of Limited Foreign
Country with respect to any Included Foreign Country, establishing for such
Included Foreign Country a Limited Foreign Country Limit.
"Lock Box Account" has the meaning specified in Section 6.06(b).
"Lock Box Agreement" has the meaning specified in Section 6.06(b).
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"Lock Box Bank" has the meaning specified in Section 6.06(b).
"Loss Horizon Ratio" means, as of any date, the fraction (i) the
numerator of which is the Outstanding Balance (measured for each Receivable at
the time of acquisition) of all Receivables acquired by the Seller during the
four Fiscal Months most recently ended on or before such date and (ii) the
denominator of which is the Outstanding Balance of all Eligible Receivables and
Included Foreign Receivables as of such date, provided that the "Loss Horizon
Ratio" with respect to any date prior to the Closing Date shall be set forth on
Schedule A to the Purchaser Report delivered Section 3.01(2).
"Loss Reserve" or "LR" means, on any date, an amount equal to:
LR = NSRB x LRP
where: NSRB = Net Subject Receivables Balance as of the close
of such Business Day
LRP = The Loss Reserve Percentage as of the close of
business of the Collection Agent on such date.
"Loss Reserve Percentage" means, as of any date, the greatest of (a)
10%, (b) four (4) times the percentage referred to in clause (a) of the
definition of "Concentration Limit" and (c) the Dynamic Loss Reserve Percentage.
"Loss-to-Liquidation Ratio" means, as of any date, the ratio (expressed
as a percentage) that is obtained 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 in accordance with
the Credit and Collection Policy, during the Fiscal Month most recently ended on
or before such date by (ii) the aggregate amount of Collections (other than any
deemed Collections) received during such Fiscal Month.
"Maxtor" has the meaning specified in Preliminary Statement 2 to this
Agreement.
"Maxtor Agreement" means an agreement in substantially the form of
Exhibit J hereto, duly executed and delivered by the parties thereto, as such
agreement may from time to time be amended, supplemented or otherwise modified
pursuant to the terms thereof and hereof.
"Moody's" means Moody's Investors Service, Inc., or any successor
thereof.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001 (a)(3) of ERISA, to which the Seller, Maxtor or any Selling Affiliate or
any ERISA Affiliate of any thereof is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
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"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the
Seller, Maxtor or any Selling Affiliate or an ERISA Affiliate of any thereof and
at least one Person other than the Seller, Maxtor or any Selling Affiliate,
respectively, and its ERISA Affiliates or (ii) was so maintained and in respect
of which the Seller, Maxtor or any Selling Affiliate, respectively, or such an
ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the
event such plan has been or were to be terminated.
"Net Subject Receivables Balance" means, at any time, the excess of (i)
the Outstanding Balance of the Subject Receivables existing at such time which
are Eligible Receivables or Included Foreign Receivables over (ii) the sum of,
without duplication (A) the Outstanding Balance of such Subject Receivables that
have become Defaulted Receivables at such time, plus (B) the aggregate amount by
which the aggregate Outstanding Balance of all Subject Receivables owed by each
Obligor existing at such time exceeds the product of (1) the Concentration Limit
for such Obligor as of such date multiplied by (2) the Net Subject Receivables
Balance as of such date plus (C) the aggregate amount by which the aggregate
Outstanding Balance of all such Subject Receivables which are owed by Obligors
which are residents of a Tier II Foreign Country exceeds 10% of the aggregate
Outstanding Balance of all Eligible Receivables and Included Foreign Receivables
as of such date, plus (D) the aggregate amount by which the aggregate
Outstanding Balance of all such Subject Receivables which are Included Foreign
Receivables owed by Obligors which are residents of any Limited Foreign Country
at such time therefor exceeds the Limited Foreign Country Limit for such Limited
Foreign Country, plus (E) the aggregate amount by which the aggregate
Outstanding Balance of all such Subject Receivables which are Included Foreign
Receivables exceeds 35% of the Net Subject Receivables Balance as of such date,
plus (F) the aggregate amount of Collections deposited in the Concentration
Account at such time for payment of any Subject Receivable the Obligor of which
has not been identified, plus (G) the aggregate Outstanding Balance of all
Subject Receivables in respect of which any credit memo is outstanding and
unapplied at such time, plus (H) the amount, if any, by which (i) the aggregate
Outstanding Balance of all Eligible Receivables required to be paid in full
within more than 60 days, but not more than 90 days, of the original billing
date therefor, exceeds (ii) 5% of the aggregate Outstanding Balance of all
Eligible Receivables and Included Foreign Receivables as of such date. As used
in this definition, "Net Subject Receivables Balance" means the "Net Subject
Receivables Balance" means the "Net Subject Receivables Balance" as disclosed on
the Daily Report.
"Obligor" means a Person (other than the Seller, Maxtor or any Selling
Affiliate) which is obligated to make payments pursuant to a Contract of the
type described in the definition of the term "Contract" contained in this
Section 1.01.
"Officer's Certificate" means a certificate signed by a Financial
Officer of the Seller or Collection Agent and delivered to the Trustee.
"Original Agreement" has the meaning specified in Preliminary Statement
2 to this Agreement.
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"Outstanding Balance" of any Receivable at any time means-the then
outstanding principal balance thereof.
"Owner" means, for each Purchased Interest, upon the making of the
Purchase thereof, each Secondary Purchaser; 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.
"Owner Collections" means, as of any date, that portion of the
Collections deposited to the Concentration Account on such date equal to the
product of (A) the Allocation Percentage on such date and (B) the aggregate
amount of such Collections.
"Participant" means, at any time for each Purchased Interest, each
Person which at such time shall have purchased from the Secondary Purchaser
which originally purchased such Purchased Interest or any successive Assignee
thereof an undivided interest in such Purchased Interest or shall have made a
commitment to the Agent to so purchase such an interest.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto performing similar functions.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Pool Non-Compliance Date" means any day on which the Net Subject
Receivables Balance falls below the Required Net Subject Receivables Balance.
"Program Fee" has the meaning specified in Section 2.08.
"Pro Rata Share" means, for each Secondary Purchaser, the percentage for
such Secondary Purchaser set forth on Schedule VII hereto, which percentage
together with such percentages for all other Secondary Purchasers shall in the
aggregate equal 100%.
"Purchase" means a purchase by the Secondary Purchasers of a Purchased
Interest from the Seller pursuant to Article II hereof.
"Purchase Date" means, for any Purchased Interest, the date as of which
such Purchased Interest shall be purchased by the Secondary Purchasers from the
Seller pursuant to Article II.
"Purchase Documents" means this Agreement, the Receivables Purchase and
Sale Agreement, the Repurchase Agreement, the Assignments, the Receivables
Contribution and Sale Agreement, each Selling Affiliate Receivables Contribution
and Sale Agreement, the Company/Maxtor Agreement, the Company/Seller Agreement,
the Maxtor Agreement, each
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<PAGE> 103
Consent and Agreement and the Fee Letter, and the documents and instruments
delivered in connection herewith and therewith.
"Purchased Interest" means, at any time on any date, an undivided
percentage ownership interest of the Secondary Purchasers at such time in (i)
all then outstanding Subject Receivables arising prior to the time of the most
recent computation or recomputation of such undivided percentage interest
pursuant to Section 2.04, (ii) all Related Security with respect to such Subject
Receivables, (iii) all Collections with respect to, and other proceeds of, such
Subject Receivables and Related Security and (iv) the Additional Assigned
Rights. Such undivided percentage interest shall be a fraction expressed as a
percentage and shall be computed as follows:
C + TR
------
NSRB
where: C = the Capital of such Purchased Interest at the
time of computation.
TR = the Total Reserves with respect to such
Purchased Interest at the time of computation.
NSRB = the Net Subject Receivables Balance at the time
of computation.
Each Purchased Interest shall be determined from time to time pursuant to the
provisions of Section 2.04 giving effect to the deposit of Owner Collections to
the Seller's Account as provided in Section 2.05.
"Purchase Limit" means, with respect to the Receivables Purchase and
Sale Agreement and this Agreement, in the aggregate, $150,000,000, as such
amount may be reduced pursuant to Section 2.03; provided, however, that on and
as of the Closing Date the Purchase Limit means, with respect to the Receivables
Purchase and Sale Agreement and this Agreement, in the aggregate, $100,000,000,
as such amount may be reduced pursuant to Section 2.03, until all of the
following conditions have been satisfied: (i) no Event of Insecurity has
occurred and is continuing, (ii) the Seller has provided to the Agent all
reports and information required to be provided by it under this Agreement,
including, without limitation, the Purchaser Report dated as of the Closing Date
(and all Purchaser Reports required to be provided thereafter) and each Daily
Report required hereunder, and such other reports and information as the Agent
may request, (iii) each of the documents referred to in Sections 3.01
(o),(p),(q) and (r) shall have been delivered to the Agent, in form and
substance satisfactory to it in its sole discretion, and (iv) all of the credit
facilities of Maxtor shall have been amended or any defaults thereunder waived
or cured all on terms satisfactory to the Agent in its sole discretion.
"Purchase Price" means, for any Purchased Interest, the original amount
paid to the Seller for such Purchased Interest by the Secondary Purchasers
pursuant to Section 2.02(c).
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"Purchaser" has the meaning specified in the recital of parties to this
Agreement.
"Purchaser Report" means a report, in substantially the form of Exhibit
B hereto, furnished by the Collection Agent and to the Agent and the Trustee for
each Owner pursuant to Section 2.06(e).
"Receivable" means the indebtedness of any Obligor under a Contract of
the type described in the definition of the term "Contract" arising from a sale
of merchandise or services by Maxtor 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), and includes the right to payment
of any interest or finance charges and other obligations of such Obligor with
respect thereto.
"Receivables Contribution and Sale Agreement" means a receivables
contribution and sale agreement in substantially the form of Exhibit H hereto,
entered into by Maxtor and the Seller, as amended, supplemented or otherwise
modified from time to time.
"Receivables Purchase and Sale Agreement" has the meaning specified in
the Preliminary Statements.
"Related Security" means with respect to any Receivable:
(i) all of the Seller's, Maxtor'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 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.
"Repurchase Agreement" has the meaning specified in Preliminary
Statement 3 to this Agreement.
"Required Net Subject Receivables Balance" means, as of any day of
determination, the sum of (i) the Total Reserves as of such day, plus (ii) the
aggregate Capital outstanding for all Purchased Interests on such day (computed
as if reduced by the aggregate amount of Cure Funds held in the Cure Account).
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"Responsible Official" means, when used with respect to the Trustee, any
officer within the Corporate Trust Office of the Trustee including any Managing
Director, Vice-President, Assistant Vice-President, Assistant Secretary,
Assistant Treasurer or any other officer of the Trustee who customarily performs
functions similar to those performed by any of the above designated Persons who
at the time shall be such officers, respectively, and also, with respect to a
particular matter, any other officer to whom any matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"Revolving Period" means the period beginning on the Closing Date and
terminating on the close of business on the Business Day immediately preceding
the Termination Date.
"Secondary Purchasers" has the meaning specified in the recital of
parties to this Agreement.
"Secondary Purchasers Fee" has the meaning specified in Section 2.08.
"Seller" has the meaning specified in the recital of parties to this
Agreement.
"Seller Assets" means all of the Seller's right, title and interest in,
to and under all Receivables, all Related Security with respect thereto, all
Collections with respect thereto, all the Seller's rights, remedies, powers and
privileges with respect to such Receivables and the related Contracts existing
at the close of business of Maxtor on the Closing Date and arising from time to
time thereafter, all Additional Assigned Rights of the Seller, and all proceeds
of each of the foregoing.
"Seller Collections" means, with respect to any date, that portion of
the Collections deposited to the Concentration Account equal to the product of
(i) 100% minus the Allocation Percentage on such date times (ii) the aggregate
amount of such Collections.
"Seller's Account" has the meaning specified in Section 2.02(b).
"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 Receivables Contribution and Sale Agreement, the
Seller) shall have executed and delivered to the Agent a Selling Affiliate
Receivables Contribution and Sale Agreement and a Consent and Agreement
hereunder and under the Receivables Purchase and Sale Agreement, and shall have
furnished to the Agent, in form and substance reasonably satisfactory to the
Agent, (i) documents of the type described in Section 3.01 relating to such
Affiliate, such Selling Affiliate Receivables Contribution and Sale Agreement,
such Consent and Agreement and the Seller and (ii) the consent of the Company to
the addition of such Affiliate as a "Selling Affiliate" hereunder and under the
Receivables Purchase and Sale Agreement, an agreement substantially similar to
the Company/Maxtor Agreement with respect to such Affiliate and its Selling
Affiliate Receivables Contribution and Sale Agreement, and documents for the
Company of the type described in Sections 3.01(o), (p),
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(q) and (r) hereof and of the Receivables Purchase and Sale Agreement and
relating to such consent.
"Selling Affiliate Receivables Contribution and Sale Agreement" means,
with respect to any Selling Affiliate, a receivables contribution and sale
agreement, substantially in the form of Exhibit H hereto, between the Seller and
such Selling Affiliate.
"Settlement Date" means the eighth Business Day of any calendar month.
"Settlement Period" for any Purchased Interest means (i) each period
commencing on the first day of a calendar month and ending on the last day of
such calendar month for such Purchased Interest; and, on and after the
Termination Date for such Purchased Interest, such period (including, without
limitation, a period of one day) as shall be selected from time to time by the
Agent or, in the absence of any such selection, each period of thirty (30) days
from the last day of the immediately preceding Settlement Period and (ii) in the
event Maxtor is no longer acting as Collection Agent, a period of one day.
"Single Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the Seller
or an ERISA Affiliate and no Person other than the Seller and its ERISA
Affiliates or (ii) was so maintained and in respect of which the Seller or an
ERISA Affiliate could have liability under Section 4069 of ERISA in the event
such plan has been or were to be terminated.
"S&P" means Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc., or any successor thereof.
"Subject Receivable" means, at any time, any Receivable in respect of
which the Obligor is a Designated Obligor at such time or was a Designated
Obligor on the date of Purchase of an interest therein hereunder other than any
such Receivable (x) which shall have been repurchased by the Seller as
contemplated by Section 2.05 (and in respect of which the Agent or any Owner has
not been required to return all or any portion of the payment received from the
Seller effecting such repurchase) 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 Sections 2.05 and 2.06
(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).
"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.
"Tier I Foreign Country" means (i) Canada, the Federal Republic of
Germany, France or the United Kingdom or (ii) any other country or territory the
inclusion of which as a "Tier I
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<PAGE> 107
Foreign Country" shall have been requested by the Seller, and consented to by
the Agent (in the Agent's sole discretion) in writing.
"Tier II Foreign Country" means (i) Belgium, Denmark, Ireland, Italy,
Japan Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden or
Switzerland or (ii) any other country or territory the inclusion of which as a
"Tier II Foreign Country" shall have been requested by the Seller, and consented
to by the Agent (in the Agent's sole discretion) in writing, so long as any such
country or territory referred to in clauses (i) or (ii) is a "Limited Foreign
Country".
"Total Reserves" means, as of any date, the sum of the Loss Reserve, the
Dilution Reserve, the Yield/Fee Reserve and the Transfer Risk Reserve.
"Transfer Risk Reserve" or "TRR" means, on any date, an amount equal to:
TRR = NSRB x TRRP
where: NSRB = Net Subject Receivables Balance as of the close
of such Business Day
TRRP = The Transfer Risk Reserve Percentage, as of the
close of business of the Collection Agent on
such date.
"Transfer Risk Reserve Percentage" means, as of any date, the product of
(i) 6.8% (or such other percentage as shall be specified by the Agent in writing
from time to time), (ii) a fraction (a) the numerator of which is the
Outstanding Balance of all Included Foreign Receivables as of the last day of
the Fiscal Month most recently ended on or before such date and (b) the
denominator of which is the Outstanding Balance of all Receivables as of the
last day of the Fiscal Month most recently ended on or before such date and
(iii) the excess of (a) 100% over (b) the sum of (1) the Dynamic Loss Reserve
Percentage as of such date plus (2) the Dilution Reserve Percentage as of such
date.
"Trustee" has the meaning specified in the recital of parties to this
Agreement.
"Trustee's Account" has the meaning specified in Section 6.07.
"Trustee Accounts" has the meaning specified in Section 6.07(c).
"Trustee's Fee" has the meaning specified in Section 11.05.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the specified jurisdiction.
"United States" means the United States of America.
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"Withdrawal Liability" has the meaning given such term under Part I of
Subtitle E of Title IV of ERISA.
"Yield" means with respect to any Purchased Interest for any Settlement
Date:
ARxCxED
-------
360
where: AR = the Assignee Rate for such Purchased Interest
for such Interest Period
C = The average actual Capital outstanding for such
Purchased Interest for such Interest Period
ED = the actual number of days elapsed during such
Interest Period
provided that no provision of this Agreement shall require the payment or permit
the collection of Yield in excess of the maximum permitted by applicable law;
and provided further that Yield for any Purchased Interest shall not be
considered paid by any distribution to the extent that at any time all or a
portion of such distribution is rescinded or must otherwise be returned for any
reason.
"Yield/Fee Amount" means, with respect to any Purchased Interest for any
date, an amount equal to:
{([(AR - AS) x 1.3] + AS + PF) x C x D} + SF + TF
---------------------------------------
360
Where AR = (i) if the Assignee Rate is based on the
Alternate Base Rate, AR is the Assignee Rate on
the date occurring two Business Days prior to
the first day of such Interest Period; and (ii)
if the Assignee Rate is based on the Adjusted
Eurodollar Rate, AR is the Assignee Rate for
such Interest Period
Where: AS = 1.00% or such other percentage specified in the
first sentence of the definition of the
Assignee Rate
PF = A percentage per annum equal to the per annum
rate of the Program Fee in effect on the first
day of the Settlement Period during which such
date occurs
C = The larger of (i) the actual aggregate Capital
for all outstanding Purchased Interests on such
date and
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<PAGE> 109
(ii) the largest Capital for all outstanding
Purchased Interests estimated in good faith by
the Seller for the Interest Period during which
such date occurs (in both cases computed as if
reduced dollar-for-dollar by the amount of Cure
Funds held in the Cure Account at such time)
D = The actual number of days in the applicable
Settlement Period
SF = An amount equal to the Collection Agent Fee
paid for the most recently ended Settlement
Period
TF = An amount equal to the aggregate of all other
fees and expenses paid for the most recently
ended Settlement Period other than SF and PF.
"Yield/Fee Reserve" means, on any date, an amount equal to:
YFR = C x YFRP
Wher e: C = The larger of (i) the actual aggregate Capital
for all outstanding Purchased Interests on such
date and (ii) the largest Capital for all
outstanding Purchased Interests estimated in
good faith by the Seller for the Interest
Period during which such date occurs (in both
cases computed as if reduced dollar-for-dollar
by the amount of Cure Funds held in the Cure
Account at such time)
YFRP = The Yield/Fee Reserve Percentage as of the
close of business of the Collection Agent on
such date.
"Yield/Fee Reserve Percentage" means, as of any date, a percentage equal
to:
([(AR - AS) x 1.3] + AS + PF + RSF + TF) x POP
----------------------------------------------
1 - (LRP + DRP)
Where: AR = (i) if the Assignee Rate is based on the
Alternate Base Rate, AR is the Assignee Rate on
the date occurring two Business Days prior to
the first day of such Interest Period, and (ii)
if the Assignee Rate is based on the Adjusted
Eurodollar Rate, AR is the Assignee Rate for
such Interest Period
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<PAGE> 110
AS = 1.00% or such other percentage specified in the
flat sentence of the definition of the Assignee
Rate
PF = A percentage per annum equal to the per annum
rate of the Program Fee in effect on the first
day of the Settlement Period during which such
date occurs
RSF = 1.00% or such other percentage as the Agent may
from time to time reasonably determine reflects
the fee payable to a successor Collection Agent
TF = A percentage fee equal to 0.01% or such other
percentage as the Agent may from time to time
reasonably determine reflects the fees and
expenses of the Trustee
POP = A percentage equal to the quotient of (a) the
sum of (i) the Collection Delay Period plus
(ii) the Average Maturity on such date divided
by (b) 360 days
LRP = A percentage equal to the Loss Reserve
Percentage as of such date
DRP = A percentage equal to the Dilution Reserve
Percentage as of such date.
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 mean "to but excluding".
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 2.01. Facility. On the terms and conditions hereinafter set
forth, each Secondary Purchaser, severally and not jointly, shall make Purchases
from time to time on any Purchase Date during the period from the date hereof to
the Termination Date. Under no circumstances shall a Secondary Purchaser make
any Purchase if after giving effect to such Purchase, (i) the aggregate Capital
with respect to all Purchased Interests owned by such
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<PAGE> 111
Secondary Purchaser, together with the product of (A) such Secondary Purchaser's
Pro Rata Share, and (B) the aggregate "Capital" of "Purchased Interests" under
the Receivables Purchase and Sale Agreement would exceed such Secondary
Purchaser's Pro Rata Share of the Purchase Limit; or (ii) the aggregate Capital
of Interests, together with the aggregate "Capital" of "Purchased Interests"
under the Receivables Purchase and Sale Agreement, would exceed the Purchase
Limit. Under no circumstances shall a Secondary Purchaser make any Purchase
until April 20, 1998. The Purchases by the Secondary Purchasers of Purchased
Interests on each Purchase Date shall be made simultaneously and ratably in
accordance with the Pro Rata Shares of each Secondary Purchaser.
SECTION 2.02. Making Purchases. (a) Each Purchase shall be made on
notice from the Seller to the Agent pursuant to Section 2.02(b) of the
Receivables Purchase and Sale Agreement, which notice shall be given not later
than 11:00 a.m. (New York City time) one Business Day prior to the date of any
such Purchase; provided, however, that if the Purchase Price requested in such
notice is less than $20,000,000, such notice shall be given not later than 11:00
a.m. (New York City time) on the Business Day of the requested Purchase. Each
such notice shall specify (i) the desired Purchase Price to be paid to the
Seller (which shall be in a minimum amount of $2,000,000 or an integral multiple
of $100,000 in excess thereof), and (ii) the desired Purchase Date (which shall
be a Business Day). Upon receipt of such notice the Agent shall promptly notify
each Secondary Purchaser of the Purchase requested by the Seller and each such
notice to the Secondary Purchasers shall be by telephone (confirmed promptly
thereafter in writing), facsimile, telex or cable, specifying the requested (A)
amount of such Purchase to be paid by each Secondary Purchaser to the Seller
(which amount shall be each Secondary Purchaser's Pro Rata Share of the
aggregate amounts requested to be paid by all Secondary Purchasers on the day
specified in such notice for such Purchase), and (B) Business Day of such
Purchase. No Secondary Purchaser shall be responsible for any failure by any
other Secondary Purchaser to perform its obligation to make a Purchase under
this Agreement. On the date of each Purchase, each Secondary Purchaser shall,
upon satisfaction of the applicable conditions set forth in Article III, cause
funds in the amount of its Purchase to be made available to the Seller at the
Seller's Account.
(b) On the date of each Purchase, each Secondary Purchaser shall, upon
satisfaction of the applicable conditions set forth in Article III, cause funds
in the amount of such Secondary Purchaser's Pro Rata Share of the Purchase Price
to the Seller at Bank of America, ABA: 121000358, Beneficiary: Maxtor
Receivables Corporation, Account: 1233-3-27501 (the "Seller's Account").
SECTION 2.03. Termination or Reduction of the Purchase Limit. (a)
Optional. The Seller may, upon at least five Business Days' notice to the Agent
and the Owners, terminate in whole or reduce in part the unused portion of the
Purchase Limit; provided, however, that for purposes of this Section 2.03(a),
the unused portion of the Purchase Limit shall be computed as the excess of (i)
the Purchase Limit immediately prior to giving effect to such termination or
reduction over (ii) the sum of (A) the aggregate Capital with respect to all
Purchased Interests outstanding at the time of such computation and (B) the
aggregate "Capital" with respect to all "Purchased Interests" outstanding at the
time of such computation under the Receivables
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<PAGE> 112
Purchase and Sale Agreement; provided further that each partial reduction shall
be in an amount equal to $5,000,000 or an integral multiple thereof
(b) Mandatory. On each day on which the Seller shall, pursuant to
Section 2.03(a) of the Receivables Purchase and Sale Agreement, reduce in part
the unused portion of the "Purchase Limit" under and as defined in the Bank
Agreement, the Purchase Limit hereunder shall automatically reduce by an equal
amount. The Purchase Limit hereunder shall automatically terminate in whole on
any day on which the Seller shall terminate in whole the Purchase Limit under
and as defined in the Receivables Purchase and Sale Agreement pursuant to
Section 2.03(a) of the Receivables Purchase and Sale Agreement.
SECTION 2.04. Purchased Interest. Each Purchased Interest shall be
initially computed as of the opening of business of the Collection Agent on the
date of purchase of such Purchased Interest. Thereafter until the Termination
Date, such Purchased Interest shall be automatically recomputed as of the close
of business of the Collection Agent on each day (giving effect to the deposit of
Owner Collections to the Seller's Account pursuant to Section 2.05). Such
Purchased Interest shall remain constant from the time as of which any such
computation or recomputation is made until the time as of which the next such
recomputations if any, shall be made. Any Purchased Interest, as computed as of
the day immediately preceding the Termination Date, shall remain constant at all
times on and after such Termination Date.
SECTION 2.05. Settlement Procedures. (a) On each Deposit Date during
each Settlement Period during the Revolving Period, unless a Cure Period shall
have occurred and be continuing, the Collection Agent shall instruct the Trustee
by a Daily Report delivered to the Trustee by 2:00 p.m. (New York City time) to,
and the Trustee shall, at such time and in the following order:
(i) allocate Collections received since receipt of the last such
Daily Report and held in the Concentration Account on such day, based on
the Daily Report, either as Owner Collections or Seller Collections;
(ii) out of such Owner Collections, allocate to, and hold in the
Concentration Account, in trust for the Owners, the Trustee and the
Collection Agent, an amount equal to the Yield/Fee Amount for such
Deposit Date to the extent such amount has not been previously so
allocated;
(iii) deposit the remainder of such Owner Collections to the
Seller's Account, provided that, if immediately following any such
deposit such Deposit Date would be a Pool Non-compliance Date, the
Trustee shall retain all such remaining Owner Collections in the
Concentration Account to be applied pursuant to Section 2.05(b)(iii);
and
(iv) deposit to the Seller's Account the Seller Collections.
On the Business Day immediately prior to each Settlement Date during the
Revolving Period, unless a Cure Period shall have occurred and be continuing,
the Collection
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Agent shall direct the Trustee in writing to deposit to the Trustee's Account
the amounts allocated and held in trust as described in clause (ii) above;
provided, however, that the portion of such deposit allocable to the Trustee's
expenses shall only be in an amount equal to the expenses reimbursable under the
Purchase Documents actually incurred by the Trustee (as certified in reasonable
detail to the Collection Agent in writing by the Trustee) during the current
Interest Period or remaining unpaid with respect to any prior Interest Period.
The Daily Report delivered by the Collection Agent to the Trustee on the first
day of each Interest Period shall set forth the Yield/Fee Amount for such
Settlement Date.
(b) On each Deposit Date during each Settlement Period if and so long as
a Cure Period shall have occurred and be continuing, the Collection Agent shall
instruct the Trustee by a Daily Report delivered to the Trustee by 2:00 p.m.
(New York City time) to, and the Trustee shall, at that time and in the
following order:
(i) allocate Collections received since receipt of the last such
Daily Report and held in the Concentration Account on such day, based on
the Daily Report, either as Owner Collections or Seller Collections;
(ii) out of Owner Collections, allocate to, and hold in the
Concentration Account, in trust for the Owners, the Trustee and the
Collection Agent, an amount equal to the Yield/Fee Amount for such date
to the extent such amount has not been previously so allocated;
(iii) deposit, out of the remainder of such Owner Collections,
to the Cure Account in an amount sufficient to make the Net Subject
Receivables Balance equal or exceed the Required Net Subject Receivables
Balance;
(iv) deposit the remainder of such Owner Collections to the
Seller's Account; provided that, if immediately following any such
deposit such Deposit Date would be a Pool Non-compliance Date, the
Trustee shall retain all such remaining Owner Collections in the
Concentration Account to be applied pursuant to Section 2.05(b)(iii);
and
(v) deposit to the Seller's Account the Seller Collections.
On the Business Day immediately prior to each Settlement Date during a
Cure Period, the Collection Agent shall direct the Trustee in writing to deposit
to the Trustee's Account the amounts allocated and held in trust as described in
clause (iii) of this Section 2.05(b).
On each Business Day during each Settlement Period, if and so long as a
Cure Period shall have occurred and be continuing, the Collection Agent shall
direct the Trustee in writing to deposit to the Trustee's Account the amounts
allocated and held in trust as described in clause (ii) above; provided,
however, that the portion of such deposit allocable to the Trustee's expenses
shall only be in an amount equal to the expenses reimbursable under the Purchase
Documents actually incurred by the Trustee (as certified in reasonable detail to
the Collection
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Agent in writing by the Trustee) during the current Interest Period Date or
remaining unpaid with respect to any prior Interest Period. The Daily Report
delivered by the Collection Agent to the Trustee on the first day of each
Interest Period shall set forth the Yield/Fee Amount for such Settlement Date.
(c) On each Deposit Date during the Amortization Period, the Collection
Agent shall instruct the Trustee by a Daily Report delivered to the Trustee by
2:00 p.m. (New York City time) to, and the Trustee shall, at that time and in
the following order:
(i) allocate Collections received since receipt of the last such
Daily Report and held in the Concentration Account, based on the Daily
Report, either as Owner Collections or as Seller Collections;
(ii) set aside and hold in the Concentration Account, in trust
for the Owners, the Trustee and the Collection Agent, such Owner
Collections; and
(iii) deposit to the Seller's Account the Seller Collections.
On the Business Day immediately prior to each Settlement Date during an
Amortization Period, the Trustee shall deposit to the Trustee's Account (A) all
amounts set aside as described in clause (ii) of this Section 2.05(c) and (B)
the amount of Cure Funds on deposit in the Cure Account.
(d) On any Business Day during the Revolving Period, unless a Cure
Period shall have occurred and be continuing, the Seller may instruct the
Collection Agent to direct the Trustee (as set forth in the Daily Report) to
deposit to the Trustee's Account all or a portion of (A) the Collections
otherwise to be deposited into the Seller's Account pursuant to Sections
2.05(a)(iii) and (iv) and (B) the Yield/Fee Amount held in the Concentration
Account pursuant to Section 2.05(a)(ii).
(e) On any Business Day during the Revolving Period, the Seller may
instruct the Trustee by an Officer's Certificate (which may be a standing
instruction) delivered to the Trustee by 2:00 p.m. (New York City time) to, and
the Trustee shall, transfer to the Seller's Account Cure Funds, if any, held in
the Cure Account; provided that the Seller shall have delivered to the Trustee
at the time of such request an Officer's Certificate stating that, after taking
account of the requested withdrawal, the Net Subject Receivables Balance on such
day is equal to or greater dm the Required Net Subject Receivables Balance and
setting forth the calculation supporting such statement.
(f) If on any day the Outstanding Balance of any Subject Receivable is
either reduced as a result of any defective, rejected or returned merchandise or
services, any cash discount, or any adjustment by the Seller, Maxtor or any
Selling Affiliate or any Affiliate of any thereof, or (ii) reduced or canceled
as a result of any dispute or claim, or any setoff in respect of any dispute or
claim, by the Obligor thereof against the Seller, Maxtor or any Selling
Affiliate or any Affiliate of any thereof (whether such dispute or claim arises
out of the same or a related
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transaction or an unrelated transaction), the Seller shall be deemed to have
received on such day a Collection of such Receivable in the amount of such
reduction or cancellation (unless such Seller shall be deemed to have received
on such day a collection in full of such Subject Receivable pursuant to the
succeeding sentence), and the Seller shall make the payment required to be made
by it in connection with such deemed Collection on the day required under, and
otherwise pursuant to, Section 5.01(h). If on any day any of the representations
or warranties in Section 4.01(h) is violated with respect to any Subject
Receivable, the Seller shall be deemed to have received on such day a Collection
in full of such Subject Receivable and shall make the payment required to be
made by it in connection with such deemed Collection on the day required under,
and otherwise pursuant to, Section 5.01(h). In the case of each of the two
preceding sentences, upon any actual payment in full by the Seller of any such
Receivable, the Seller shall be deemed to have repurchased (without recourse and
without representation or warranty, express or implied) such Receivable and such
Receivable shall cease to be a "Subject Receivable" for purposes of this
Agreement (unless and until the Agent or any Owner is at any time required to
return all or any portion of such payment for any reason).
(g) Except as otherwise stated in this Section 2.05 or as otherwise
required by law or the underlying contract or the applicable Credit and
Collection Policy, all Collections received from an Obligor of any Receivable
shall be applied to Receivables then outstanding of such Obligor in the order of
the age of such Receivables, starting with the oldest such Receivable unless
such Obligor designated its payment for application to specific Receivables,
and, in any case, no later than ten Business Days after such payment shall have
been made by such Obligor.
SECTION 2.06. Distributions. (a) During the Revolving Period, on each
Settlement Date, the Trustee shall distribute the funds on deposit in the
Trustee's Account on such Settlement Date, in the following order of priority,
in accordance with the Purchaser Report:
(i) to the Trustee as the accrued and unpaid Trustee's Fee and
reasonable expenses of the Trustee reimbursable under the Purchase
Documents, in an amount not in excess of $1,000 for such Settlement
Date;
(ii) to the Agent's Account for the Collection Agent for the
accrued and unpaid Collection Agent Fee;
(iii) unless otherwise instructed by the Agent, to the Agent's
Account:
(A) for payment of the fees and any other amounts due under
the Fee Letter other than Breakage Costs; and
(B) for distribution to each Owner by the Agent, ratably in
accordance with such Owner's Purchased Interest, for payment of
Yield on such Purchased Interest;
(iv) to the Trustee as Trustee's expenses reimbursable under the
Purchase Documents in excess of $1,000 for such Settlement Date;
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<PAGE> 116
(v) unless otherwise instructed by the Agent, to the Agent's
Account for payment of Breakage Costs;
(vi) to the Agent's Account for the Owners, the Banks and the
Agent for payment of any other amounts (other than Capital) due thereto
under any of the Purchase Documents;
(vii) to the Concentration Account, amounts required to be
allocated to the Yield/Fee Amount for the immediately succeeding
Settlement Date; and
(viii) after the payment in full of the amounts specified in
clauses (i) through (vii) above, to the Seller.
(b) On each Settlement Date during the Amortization Period, the
Trustee shall distribute the funds on deposit in the Trustee's Account on such
Settlement Date, in the following order of priority, in accordance with the
Purchaser Report:
(i) to the Trustee as the accrued and unpaid Trustee's Fee and
reasonable expenses of the Trustee reimbursable under the Purchase
Documents, in an amount not in excess of $1,000 for such Settlement
Date;
(ii) to the Agent's Account for the Collection Agent as the
accrued and unpaid Collection Agent Fee;
(iii) unless otherwise instructed by the Agent, to the Agent's
Account:
(A) for payment of the fees and any other amounts due under
the Fee Letter other than Breakage Costs; and
(B) for distribution to each Owner by the Agent, ratably in
accordance with such Owner's Purchased Interest, for payment of
Yield on such Purchased Interest;
(iv) to the Agent's Account for each Owner, ratably in
accordance with such Owner's Purchased Interest, in reduction of the
Capital for such Purchased Interest until such Capital is reduced to
zero;
(v) to the Trustee as Trustee's expenses reimbursable under the
Purchase Documents in excess of $1,000 for such Settlement Date;
(vi) unless otherwise instructed by the Agent, to the Agent's
Account for payment of Breakage Costs;
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(vii) to the Agent's Account for the Owners and the Agent for
payment of any other amounts due the Owners and the Agent under the
Purchase Documents;
(viii) after the payment in full of the amounts specified in
clauses (i) through (vii) above, to the Seller.
(c) In accordance with the provisions of Section 2.05(d), the
Trustee shall distribute the funds on deposit in the Trustee's Account to the
Agent's Account, unless otherwise instructed by the Agent in writing, in
reduction of any Capital and any payment of Yield, any Breakage Costs and any
other amounts due the Owners under the Purchase Documents in respect of any
Purchased Interest.
(d) Pursuant to Section 2.05(b), on each Settlement Date the
Trustee shall distribute the amounts withdrawn from the Cure Account under
Section 2.05(b), that have been deposited to the Trustee's Account, promptly
upon receipt thereof, to the Agent's Account for distribution to each Owner,
ratably in accordance with such Owner's Purchased Interest, in reduction of the
Capital for such Purchased Interest, unless otherwise instructed by the Agent in
writing.
Upon payment in full to all of the Owners of the aggregate
Capital for all Purchased Interests outstanding, all accrued and unpaid Yield
thereon and all other amounts due the Owners and the Agent under the Purchase
Documents, payment in full to the Collection Agent of the Collection Agent Fee,
and payment in full to the Trustee of the Trustee's Fee and all reasonable
expenses of the Trustee reimbursable under the Purchase Documents, all amounts
remaining on deposit in the Trustee's Account and the Cure Account shall be
distributed by the Trustee to the Seller, and all amounts, if any, remaining in
the Lock Box Accounts and the Concentration Account shall be distributed by the
Agent to the Seller; provided, however, that if at any time after the payment
that would have otherwise resulted in such payment in full, such payment is
rescinded or must otherwise be returned for any reason, effective upon such
rescission or return, such payment in full shall automatically be deemed, as
between the Owners and the Seller, never to have occurred, and the Seller shall
be required, to the extent it received any amounts under this Section 2.06, to
remit to the Trustee an amount equal to the rescinded or returned payment.
(e) Prior to the 6th Business Day of each calendar month, the
Collection Agent shall prepare and forward to the Agent and the Trustee for each
Owner of a Purchased Interest (A) a Purchaser Report relating to such Purchased
Interest, as of the close of business of the Collection Agent on the last day of
the immediately preceding month, and (B) an analysis as to the aging of all
Subject Receivables, as of such last day.
(f) On each Business Day, by no later than 2:00 p.m. (New York
City time), the Collection Agent shall prepare and forward to the Agent for each
Owner of a Purchased Interest and the Trustee, a Daily Report relating to such
Purchased Interest.
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SECTION 2.07. Payments and Computations, Etc. All amounts to be paid or
deposited by the Seller, the Collection Agent or the Trustee hereunder shall be
paid or deposited in accordance with the terms hereof no later than 4.00 p.m.
(New York City time) on the day when due in lawful money of the United States of
America in same day funds to the Agent's Account. The Seller shall, to the
extent permitted by law, pay to the Agent interest on all amounts not paid or
deposited when due hereunder at 1% per annum above the Alternate Base Rate in
effect from time to time, payable on demand, provided, however, that such
interest rate shall not at any time exceed the maximum rate permitted by
applicable law. Such interest shall be retained by the Agent except to the
extent that such failure to make a timely payment or deposit has continued
beyond the date for distribution by the Agent of such overdue amount to an Owner
of a Purchased Interest, in which case such interest accruing after such date
shall be for the account of, and distributed by the Agent to, such Owner. All
computations of interest and fees hereunder shall be made on the basis of a year
of 360 days for the actual number of days (including the first but excluding the
last day) elapsed.
SECTION 2.08. Fees. (a) The Seller shall pay the following fees:
(i) to the Agent, in consideration for the support of the
Purchased Interests purchased hereunder, a fee (the "Program Fee") as
set forth in the Fee Letter;
(ii) to the Agent for the account of the Secondary Purchasers a
fee (the "Secondary Purchasers Fee") as set forth in the Fee Letter; and
(iii) to the Agent for the account of the Banks and the
Participants (the "Facility Fee") as set forth in the Fee Letter.
(b) The Seller shall also pay to the Agent for the account of the Agent
a fee (the "Arrangement Fee") as set forth in the Fee Letter, payable on the
date of execution of this Agreement.
(c) Each Owner shall pay to the Collection Agent a collection fee (the
"Collection Agent Fee"), from the Closing Date until the Collection Date,
payable on each Settlement Date, in an amount equal to the greater of (i) 0.25
of 1% per annum on the average daily amount of Capital for each Purchased
Interest owned by such Owner, or (ii) 110% of the reasonable out-of-pocket costs
and expenses of the Collection Agent of servicing, administering and collecting
such Owner's ratable share of the Subject Receivables if and to the extent that
such costs and expenses are specified in reasonable detail, including copies of
supporting documentation, in a writing delivered to the Agent no later than
three Business Days prior to such Settlement Date.
SECTION 2.09. Eurodollar Increased Costs. (a) If any Owner shall be
subject to any Eurodollar Increased Costs, then, upon demand by such Owner (with
a copy to the Agent), the Seller shall immediately pay to the Agent, for the
account of such Owner (as a third-party beneficiary), from time to time as
specified, additional amounts sufficient to compensate such
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Owner for such Eurodollar Increased Costs. A certificate as to such amounts
submitted to the Seller and the Agent shall be conclusive and binding for all
purposes, absent manifest error.
(b) If any Owner shall, pursuant to Section 2.09(a), make a
demand for compensation for Eurodollar Increased Costs, the Seller shall have
the right, upon at least thirty (30) days' prior written notice to such Owner
(with a copy to the Agent), to cause such Owner to use its best efforts to
assign to an Assignee selected by the Seller and consented to in writing by the
Agent (which consent shall not be unreasonably withheld) the Purchased Interests
of such Owner and its rights in respect thereof, all in accordance with Section
9.01; provided that no action taken under this subsection (b) shall affect the
Seller's obligation to compensate any such Owner for Eurodollar Increased Costs
for the period prior to the effectiveness of such assignment.
ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01. Condition Precedent to Initial Purchase. The initial
Purchase hereunder is subject to the condition precedent that the Agent and each
Secondary Purchaser shall have received on or before the Purchase Date for such
Purchase, the following, each (unless otherwise indicated) dated, or dated as
of, such Purchase Date, in form and substance satisfactory to the Agent and each
of the Secondary Purchasers:
(a) The initial Assignment, duly executed by the Seller, dated
the date hereof.
(b) The Receivables Contribution and Sale Agreement, duly
executed by the Seller and Maxtor, and acknowledged by the Agent,
together with:
(i) Stamped receipt copies of proper financing statements
naming Maxtor as seller, the Seller as purchaser and CNAI, as
Agent and as assignee, together with evidence reasonably
satisfactory to the Agent of the due filing thereof on or before
the Closing Date, under the UCC of all jurisdictions that the
Agent may deem necessary or desirable in order to perfect the
Seller's interests created or purported to be created by the
Receivables Contribution and Sale Agreement and the Agent's
interests created or purported to be created by this Agreement;
(ii) Proper financing statements, if any, necessary to
release all security interests and other rights of any Person in
the Seller Assets previously granted by Maxtor;
(iii) [Intentionally left blank]
(iv) The Maxtor Agreement, duly executed by Maxtor.
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(c) Certified copies of the charter and by-laws, as amended, of
each of the Seller and Maxtor.
(d) Certified copies of the resolutions of the Board of
Directors of each of the Seller and Maxtor approving this Agreement and
the other Purchase Documents to be delivered by the Seller and Maxtor,
respectively, hereunder and the transactions contemplated hereby and
thereby, and of all documents evidencing other necessary corporate
action and governmental approvals, if any, with respect to such Purchase
Documents. Documented evidence, in form and substance satisfactory to
the Agent, of all requisite corporate action having been taken by the
Trustee to approve and authorize the execution and delivery by the
Trustee of each of the Purchase Documents to which it is party and
performance of its obligations thereunder.
(e) A certificate of the Secretary or Assistant Secretary (or,
in the case of the Trustee, an Assistant Treasurer) of each of the
Seller, Maxtor and the Trustee certifying the names and true signatures
of the officers of the Seller, Maxtor and the Trustee, respectively,
authorized to sign this Agreement and the other Purchase Documents to be
delivered by it hereunder.
(f) Good standing certificates issued by the Secretary of State
of the jurisdictions of incorporation of each of the Seller and Maxtor,
respectively.
(g) Stamped receipt copies of proper financing statements, duly
filed with respect to all Seller Assets, on or before the Closing Date
under the UCC of all jurisdictions that the Agent may deem necessary or
desirable in order to perfect the sales and transfers of legal and
equitable title, and ownership interests, or the grant of a security
interest therein, contemplated hereby.
(h) Proper financing statements, if any, necessary to release
all security interests and other rights of any Person in the Seller
Assets, previously granted by the Seller.
(i) [Intentionally left blank].
(j) Lock Box Agreements duly executed by the Lock Box Banks, the
Agent and the Seller.
(k) A favorable opinion of Morrison & Foerster LLP, counsel for
the Seller and Maxtor, substantially in the form of Exhibit E- I hereto,
which shall include, without limitation, (A) an opinion as to
perfection, (B) an opinion as to enforceability, (C) a general corporate
opinion and (D) such other matters as the Agent may reasonably request.
(l) A favorable opinion of Morrison & Foerster LLP, counsel for
the Seller and Maxtor, substantially in the Form of Exhibit E-2 hereto,
which shall include (A) a
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"true sale" opinion with respect to the sales of Receivables from Maxtor
to the Seller, (B) an opinion relating to the likelihood of a
substantive consolidation of Maxtor with the Seller and (C) such other
matters as the Agent may reasonably request.
(m) A favorable opinion of Glenn Stevens, in-house counsel for
the Seller, substantially in the form of Exhibit E-3 hereto, as to such
matters as the Agent may reasonably request.
(n) A letter of the Seller to the Secondary Purchasers, Citibank
and CNAI, individually and as the Agent, substantially in the form of
Exhibit F hereto.
(o) The Company/Maxtor Agreement and the Company/Seller
Agreement, each duly executed by the Company.
(p) Certified copies of the resolutions of the Board of
Directors of the Company approving the Company/Maxtor Agreement and the
Company/Seller Agreement and the other Purchase Documents to be
delivered by it hereunder and the actions contemplated thereby, and of
all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to such Purchase Documents.
(q) A certificate of a Representative Director of the Company
certifying the names and true signatures of the officers of the Company
authorized to sign the Purchase Documents to be delivered by it
hereunder.
(r) Favorable opinions of Kim & Chang, counsel for the Company,
and special Korean in-house counsel for the Company, substantially in
the forms of Exhibits G-1 and G-2, respectively, hereto and as to such
other matters as the Agent may reasonably request.
(s) The Bank Agreement, duly executed by each of the parties
thereto.
(t) The Fee Letter, in form and substance satisfactory to the
Agent duly executed by the Seller.
(u) Evidence that all bank accounts required to be established
and maintained under the Purchase Documents shall have been established.
(v) The Repurchase Agreement and each other Purchase Document,
duly executed by each party thereto.
(w) Evidence that all related fees and expenses then due and
payable in connection with the Purchase Documents have been paid.
(x) The Daily Report, in form and substance satisfactory to the
Agent and the Trustee, prepared on a pro forma basis and showing that
the Seller is in compliance with
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all the Purchase Documents (after giving effect to the initial
Purchase), to the extent a showing of such compliance is called for in
the form thereof.
(y) An accounts receivable trial balance as of the initial
Purchase Date (which if, in magnetic tape or diskette format, shall be
compatible with the Seller's, or, if applicable, the Collection Agent's
equipment).
(z) A completed Purchaser Report, together with historical
Receivables portfolio data attached thereto as Schedule A, in each case
in form and substance satisfactory to the Agent and the Trustee.
(aa) A favorable opinion of Seward & Kissel, counsel for the
Trustee, in form and substance satisfactory to the Agent.
(bb) A favorable opinion of Shearman & Sterling, counsel for the
Agent, as to such matters as the Agent may reasonably request.
SECTION 3.02. Conditions Precedent to All Purchases and Deposits. (a)
Each Purchase (including the initial Purchase) and each deposit of Owner
Collections to the Seller's Account hereunder pursuant to Section 2.02 and each
deposit of Owner Collections to the Seller's Account shall be subject to the
conditions Precedent set forth in Section 3.01 and to the further conditions
precedent that the Collection Agent shall have delivered to each Secondary
Purchaser and the Agent, in form and substance satisfactory to the Agent and the
Secondary Purchasers, (i) all Purchaser Reports and Daily Reports, as and when
due under Section 2.06, and (ii) such additional information as may be
reasonably requested by any Secondary Purchaser or the Agent, (b) on the date of
each such Purchase and each deposit of Owner Collections to the Seller's Account
the following statements shall be true (and the acceptance by the Seller of the
proceeds of such Purchase or deposit shall constitute a representation and
warranty by the Seller that on such date in the case of each Purchase or deposit
such statements are true):
(i) The representations and warranties contained in this Agreement and
each other Purchase Document are correct on and as of the date of such Purchase,
before and after giving effect to such Purchase and to the application of the
proceeds therefrom, as though made on and as of such date,
(ii) No event has occurred and is continuing, or would result from such
Purchase or from the application of the proceeds therefrom, which constitutes an
Event of Termination or Incipient Event of Termination,
(iii) On such date, all of the Company's long-term public senior debt
securities are rated at least B- by S&P and at least B3 by Moody's or, if such
securities are not rated by S&P and Moody's, such securities have a deemed
rating of at least B- and B3, as determined by the Agent in its sole discretion,
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(iv) The Net Subject Receivables Balance is at least equal to Required
Net Subject Receivables Balance, and
(v) The Agent shall not have received any notification from S&P or
Moody's that the transactions contemplated or effected by the Purchase Documents
are not of a type which it is desirable for the Purchaser to consummate;
(c) the Receivables Purchase and Sale Agreement shall be in form and substance
satisfactory to the Agent and the Secondary Purchasers and shall be in full
force and effect and (d) the Agent and the Secondary Purchasers shall have
received such other approvals, opinions or documents as the Agent and the
Secondary Purchasers may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller. The Seller
represents and wan-ants, as of the date hereof and as of the date of each
Purchase hereunder and each "Sale" under the Receivables Contribution and Sale
Agreement and each Selling Affiliate Receivables Contribution and Sale
Agreement, as follows:
(a) The Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction
indicated at the beginning of this Agreement.
(b) The execution, delivery and performance by the Seller of
each Purchase Document to be delivered by it hereunder and under the
Receivables Purchase and Sale Agreement and the transactions
contemplated hereby and thereby, and the Seller's use of the proceeds of
Purchases and deposits to the Seller's Account, are within the Seller's
corporate powers, have been duly authorized by all necessary corporate
action, do not contravene (i) the Seller's charter or by-laws or (ii)
any law or Contract or other contractual restriction binding on or
affecting the Seller, and do not result in or require the creation of
any Adverse Claim (other than pursuant hereto) upon or with respect to
any of its properties; and no transaction contemplated hereby requires
compliance with any bulk sales act or similar law.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or other Person is required for the due execution, delivery and
performance by the Seller of any Purchase Document to be delivered by it
hereunder or thereunder, or for the perfection of or the exercise by the
Agent or any Owner of its rights and remedies under each such Purchase
Document, except for (i) the filings of the financing statements
referred to in Article III, all of which, on or prior to the Closing
Date, will have been duly made and be in full force and effect, and (ii)
upon any Person's becoming a Selling Affiliate hereunder, the filings of
the financing statements required pursuant to the definition of the term
"Selling Affiliate", all
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of which, on or prior to the date such Person shall become a Selling
Affiliate, will have been duly made and be in full force and effect.
(d) Each Purchase Document is, or when delivered hereunder will
be, the legal, valid and binding obligation of the Seller, enforceable
against the Seller in accordance with its respective terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and except as such enforceability may be limited by
general principles of equity, whether considered in a suit in law or in
equity). Each Assignment, when delivered hereunder, will evidence the
transfer to the Secondary Purchasers of legal and equitable title to,
and ownership of, an undivided percentage ownership interest in the
Seller Assets, or a valid and perfected first priority security interest
therein.
(e) The consolidated pro-forma balance sheet of the Seller as at
the Closing Date, copies of which have been furnished to the Agent,
fairly presents the consolidated pro-forma financial condition of the
Seller as at such date after giving effect to the transactions
contemplated to take place on the date hereof pursuant to the Purchase
Documents, all in accordance with generally accepted accounting
principles consistently applied.
(f) There is no pending or threatened action or proceeding
affecting the Seller, Maxtor or any Selling Affiliate or any of their
subsidiaries before any court, governmental agency or arbitrator which
may materially adversely affect (i) the collectibility of the Subject
Receivables or the ability of Maxtor, the Seller, any Selling Affiliate
or the Collection Agent to collect Subject Receivables or (ii) the
ability of Maxtor, the Seller or any Selling Affiliate to perform its
obligations under any Purchase Document to be delivered by it hereunder,
or which purports to affect the legality, validity or enforceability of
any Purchase Document.
(g) No proceeds of any Purchase or deposit to the Seller's
Account (other than the proceeds of Seller Collections) will be used to
purchase or carry any margin stock (within the meaning of Regulation U
issued by the Board of Governors of the Federal Reserve System).
(h) Immediately prior to the time of the initial creation of an
interest hereunder in any Seller Asset, the Seller is the legal and
beneficial owner of the Seller Asset, in each case free and clear of any
Adverse Claim except as created by this Agreement or to the extent
created by the Agent or the Secondary Purchasers or any Owner. On the
date of the initial creation of an interest in each Subject Receivable
hereunder, such Subject Receivable (except as otherwise set forth on the
Daily Report) constitutes an Eligible Receivable or Included Foreign
Receivable. Upon each Purchase and deposit to the Seller's Account, the
Seller shall (i) transfer to the Owner making such Purchase or deposit
(and such Owner shall acquire) a valid and perfected undivided
percentage ownership interest in each Seller Asset, or (ii) grant to the
Agent, for the
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benefit of the Beneficiaries, a valid and perfected first priority
security interest in each Seller Asset, free, and clear of any Adverse
Claim except as created by this Agreement and the Assignments or to the
extent created by the Agent or the Secondary Purchasers or any Owner. No
effective financing statement or other instrument similarly in effect
covering any Seller Asset or any Lock Box Account or other deposit
account to the extent any Collections are from time to time deposited
therein is on file in any recording office, except those filed in favor
of the Agent relating to the Purchase Documents, or in favor of the
Seller and the Agent or those listing the Seller or Maxtor as secured
party and the applicable Obligor as debtor.
(i) Each Purchaser Report and Daily Report (in each case if
prepared by the Seller, Maxtor or any Selling Affiliate or any Affiliate
of any thereof, or to the extent that information contained therein is
supplied by the Seller, Maxtor or any Selling Affiliate or any Affiliate
of any thereof), notice or other written item of information, exhibit,
financial statement, document, book, record or report furnished or to be
furnished at any time by the Seller, Maxtor or any Selling Affiliate to
the Agent, the Trustee or any Owner in each case in connection with this
Agreement is or will be accurate in all material respects as of its date
or (except as otherwise disclosed to the Agent, the Trustee or such
Owner, as the case may be, at such time) as of the date so furnished,
and as of such relevant date no such document contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements contained
therein, in the light of the circumstances under which they were made,
not misleading.
(j) The chief place of business and chief executive office of
the Seller and the office where the Seller keeps its records concerning
the Seller Assets are located at the address specified in Section 13.02
hereto (or at such other locations, notified to the Agent and the
Trustee in accordance with Section 5.01(f), in jurisdictions where all
action required by Section 6.05 has been taken and completed).
(k) The names and addresses of all the Lock Box Banks, together
with the account numbers of the Lock Box Accounts of the Seller and the
Selling Affiliates, respectively, at such Lock Box Banks, are specified
in Schedule I hereto (or at such other Lock Box Banks and/or with such
other Lock Box Accounts as have been notified to the Agent and for which
Lock Box Agreements have been executed in accordance with Section
6.06(b)).
(1) Neither the Seller nor any Affiliate (of the type set forth
in clause (i)(x) of the definition of the term "Affiliate") of the
Seller has any direct or indirect ownership or other financial interest
in the Agent, the Secondary Purchasers or any Bank.
(m) Any use by any Secondary Purchaser of the proceeds of its
issuance of commercial paper having a maturity of not more than nine
months to make each respective Purchase will constitute (i) a "current
transaction" within the meaning of Section 3(a)(3) of the Securities Act
of 1933, as amended, and (ii) a purchase or other acquisition of notes,
drafts, acceptances, open accounts receivable or other obligations
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representing part or all of the sales price of merchandise, insurance or
services within the meaning of Section 3(c)(5) of the Investment Company
Act of 1940, as amended.
(n) None of the Seller Assets is evidenced by any "instrument"
or "chattel paper" within the meaning of the UCC in effect in the State
of California other than any Receivable (i) which shall have become a
Defaulted Receivable after the date on which such Receivable became a
Subject Receivable hereunder or under the Original Agreement and (ii) in
connection with which Defaulted Receivable the Seller as Collection
Agent shall have accepted an instrument, which instrument shall have
been duly endorsed and delivered to the Agent by the Seller, to maximize
the Collections thereof as contemplated by Section 6.02(c).
(o) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Plan that has resulted or is reasonably likely
to result in a material liability of the Seller, Maxtor or any Selling
Affiliate.
(p) The aggregate Insufficiency under all Plans does not exceed
$10,000,000.
(q) None of the Seller, Maxtor, any Selling Affiliate or any
ERISA Affiliate of any thereof has incurred or is reasonably expected to
incur any material Withdrawal Liability (that has not been satisfied) to
any Multiemployer Plan.
(r) None of the Seller, Maxtor, any Selling Affiliate or any
ERISA Affiliate of any thereof has been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in reorganization or
has been terminated, within the meaning of Title IV of ERISA, and no
Multiemployer Plan is reasonably expected to be in reorganization or to
be terminated, within the meaning of Title IV of ERISA.
(s) The Seller and its subsidiaries have no material liability
with respect to "expected postretirement benefit obligations" within the
meaning of Statement of Financial Accounting Standards No. 106.
(t) The Seller has not changed its name during the four month
period prior to the date hereof, and has no tradenames, fictitious
names, assumed names or "doing business as" names.
(u) With respect to all Seller Assets, the Seller has purchased
such Seller Assets from Maxtor or the applicable Selling Affiliate (in
accordance with the provisions of the Receivables Contribution and Sale
Agreement or the Selling Affiliate Receivables Contribution and Sale
Agreement, as applicable) for fair consideration and approximate fair
market value for such Seller Assets 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. No such sale has been made for or on account of an
antecedent debt owed by Maxtor or such Selling Affiliate to the Seller,
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and no such sale or contribution is or may be voidable or subject to
avoidance under any section of the Federal Bankruptcy Code.
(v) The Seller has not sold, assigned, transferred, pledged or
hypothecated any interest in any Seller Asset to any Person other than
as contemplated by the Purchase Documents.
(w) Each of the Seller, Maxtor and each Selling Affiliate has
complied with the Credit and Collection Policy in all material respects
and since the date of this Agreement there has been no change in the
Credit and Collection Policy except as permitted hereunder.
(x) The obligations of the Seller hereunder to make payments in
respect of fees and indemnities payable to any Beneficiary rank at least
equally with indebtedness of the Seller which is not contractually
subordinated.
(y) The Seller has not granted any Person other than the Agent
dominion and control of any Lock Box Account, or the right to take
dominion and control over any Lock Box Account at a future time or upon
the occurrence of a future event.
(z) The Seller has no subsidiaries and shall not establish or
acquire any subsidiaries.
(aa) The Seller has filed, or caused to be filed or be included
in, all tax reports and returns (federal, state, local and foreign), if
any, required to be filed by it and paid, or cause to be paid, all
amounts of taxes, including interest and penalties required to be paid
by it, except for such taxes (i) as are being contested in good faith by
proper proceedings and (ii) against which adequate reserves shall have
been established in accordance with and to the extent required by GAAP,
but only so long as the proceedings referred to in clause (i) above
could not subject the Agent or any other Indemnified Party to any civil
or criminal penalty or liability or involve any material risk of the
loss, sale or forfeiture of any property, rights or interests covered
hereunder or under any other Purchase Document.
(bb) There are no Adverse Claims (including, without limitation,
liens or retained security titles of conditional vendors, but excluding
any Adverse Claims created hereunder) of any nature whatsoever on any
properties of the Seller. The Seller is not a party to any contract,
agreement, lease or instrument the performance of which, either
unconditionally or upon the happening of an event, will result in or
require the creation of any Adverse Claim on the property or assets of
the Seller, or otherwise result in a violation of this Agreement or any
other Purchase Document, other than any Adverse Claims created pursuant
to any Purchase Document.
(cc) (i) The Seller is not a party to any indenture, loan or
credit agreement or any lease or other agreement or instrument or
subject to any organizational restriction that
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could reasonably be expected to have, and no provision of applicable law
or governmental regulation could reasonably be expected to have, a
material adverse effect on the condition (financial or otherwise),
business, operations, properties or prospects of the Seller, or may
reasonably be expected to have such an effect on the ability of the
Seller to carry out its obligations hereunder or under any other
Purchase Document, and (ii) neither the Seller nor, to the best of the
knowledge of the Seller, any other party is in default under or with
respect to this Agreement, any other Purchase Document or any other
contract, agreement, lease or other instrument to which the Seller is a
party and which is material to the Seller's condition (financial or
otherwise), business, operations, properties or prospects, and neither
the Seller nor any such other party has delivered or received any notice
of default thereunder.
(dd) The Lock Box Banks are the only institutions holding Lock
Box Accounts for the receipt of payments from all Obligors, and such
Obligors have been instructed or, upon the creation of Receivables owed
by them, will be instructed to make payments only to Lock Box Accounts,
and such instructions have not been modified or revoked by the Seller
and are in full force and effect.
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 Seller Assets.
(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 and to the Seller
Assets, 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, or, otherwise, at the
Agent's expense, (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, Maxtor, their Affiliates or the
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agents of the Seller, Maxtor or their Affiliates relating to the Seller
Assets and the Lock Box Account activity, 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
Seller Assets and the Lock Box Account activity or the Seller's,
Maxtor'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 Coopers & Lybrand to perform, and deliver to the Agent a
written report of, or permit other independent public accountants
specified by the Agent (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 and the Owners a written report of, an
audit with respect to the Receivables, the Related Security, the Credit
and Collection Policies, the Lock Box Account activity and the
performance by the Seller, Maxtor and the Selling Affiliates of their
respective obligations, covenants and duties under the Purchase
Documents, in substantially 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 Seller Assets 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 and the Trustee, 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.
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(i) Instruct, or cause to be instructed, all Obligors to
make all payments in respect of Subject Receivables directly to
a Lock Box Account,
(ii) if the Seller shall otherwise 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 2.05, 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, 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 immediately sweep Collections from the
Lock Box Accounts to the Concentration Account.
(i) Selling Affiliate Receivables Contribution and Sale
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
Receivables Contribution and Sale Agreements, maintain the respective
Selling Affiliate Receivables Contribution and Sale Agreements in full
force and effect, enforce the respective Selling Affiliate Receivables
Contribution and Sale 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
Receivables Contribution and Sale 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.
(j) Maintenance of Separate Existence. Do all things necessary
to maintain its corporate existence separate and apart from Maxtor and
other Affiliates of the Seller, including, without limitation, (i)
maintaining proper corporate records and books of account separate from
those of such Affiliates; (ii) maintaining its assets, funds and
transactions separate from those of such Affiliates, reflecting such
assets and transactions in financial statements separate and distinct
from those of such Affiliates, and evidencing such assets, funds and
transactions by appropriate entries in the books and records referred to
in clause (i) above, and providing for its own operating expenses and
liabilities
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from its own assets and funds other than certain expenses and
liabilities relating to basic corporate overhead which may be allocated
between the Seller and such Affiliates; (iii) holding such appropriate
meetings or obtaining such appropriate consents of its Board of
Directors as are necessary to authorize all the Seller's corporate
actions required by law to be authorized by the Board of Directors,
keeping minutes of such meetings and of meetings of its stockholders and
observing all other customary corporate formalities (and any successor
Seller not a corporation shall observe similar procedures in accordance
with its governing documents and applicable law); (iv) at all times
entering into its contracts and otherwise holding itself out to the
public under the Seller's own name as a legal entity separate and
distinct from such Affiliates; and (v) conducting all transactions and
dealings between the Seller and such Affiliates on an arm's-length
basis.
(k) Compliance with Opinion Assumptions and Constituent
Documents. Without limiting the generality of Section 5.01(j) above,
maintain in place all policies and procedures, and take and continue to
take all actions, described in the assumptions as to facts set forth in,
and forming the basis of, the opinions set forth in the opinion
delivered to the Agent in substantially the form of the opinion
delivered pursuant to Section 3.01 (1), and comply with, and cause
compliance with, the provisions of the constituent documents of the
Seller delivered to the Agent pursuant to Section 3.01 as the same may,
from time to time, be amended, modified or otherwise supplemented with
the prior written consent of the Agent.
(1) Purchase of Seller Assets from Maxtor. With respect to all
Seller Assets outstanding from time to time, purchase from Maxtor or
such Selling Affiliate (in accordance with the Receivables Contribution
and Sale Agreement or the respective Selling Affiliate Receivables
Contribution and Sale Agreement, as applicable) for fair consideration
and approximate fair market value for such Seller Assets 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.
(m) Nature of Business and Permitted Transactions. Engage solely
in the following businesses and transactions, directly or indirectly:
purchasing Seller Assets from Maxtor and the Selling Affiliates and
selling interests in such Seller Assets to the Owners hereunder and the
other transactions permitted or contemplated hereby.
(n) Receivables Contribution and Sale Agreement. 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 Receivables Contribution and Sale Agreement and all Selling
Affiliate Receivables Contribution and Sale Agreements, maintain the
Receivables Contribution and Sale Agreement and all Selling Affiliate
Receivables Contribution and Sale Agreements in full force and effect,
enforce the Receivables Contribution and Sale Agreement in accordance
with their respective 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 Receivables Contribution and Sale Agreement or any Selling
Affiliate Receivables Contribution and Sale Agreement such demands and
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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.
(o) Conditions Subsequent to Initial Purchase. Deliver to the
Agent (i) as soon as possible, and in any event within 30 days after the
Closing Date (or such later date as may be agreed in writing by the
Seller and the Agent), completed requests for information, dated after
the Closing Date, listing the financing statements referred to in
Section 3.01(b) and (g) and all other effective financing statements
filed in the jurisdictions referred to in subsection 3.01(b) and (g)
that name the Seller or Maxtor as debtor or seller, together with copies
of such other financing statements (none of which shall cover any Seller
Assets other than Seller Assets covered by financing statements with
respect to which the Agent received financing statements of the type
described in Section 3.01(b) and (g)), and (ii) on or before April 10,
1998 (or such later date as may be agreed in writing by the Seller and
the Agent), a Parent Undertaking in substantially the form of Exhibit J,
duly executed by Hyundai Electronics Industries Co., Ltd (which
undertaking shall be released upon satisfaction of the conditions
precedent referred to in Section 3.01(o), (p), (q) and (r)).
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, each owner and the Trustee:
(a) 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 balance sheet of the Seller as of the end of such quarter and
statements of income and of cash flows of the Seller 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 balance sheet of the Seller as of the end of
such year and statements of income and of cash flows for such year,
certified in a manner acceptable to the Agent by Coopers & Lybrand or
other independent public accountants acceptable to the Agent and the
Owners;
(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) 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
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information and documents delivered or received by the Seller from time
to time under or in connection with any Purchase Document;
(e) 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 Transaction, a list of the outstanding Receivables on such day;
and
(f) such other information, documents, records or reports
respecting the Seller Assets or the condition or operations, financial
or otherwise, of the Seller, the Selling Affiliates or any of their
respective subsidiaries as the Agent or any Owner 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 in the
Purchase Documents, 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 Secondary Purchasers or any Owner) upon or with respect to,
the Seller's undivided interest in any Seller Assets or any Lock Box
Account or other deposit account to which any Collections of any
Receivable are sent 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 Maxtor 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 Maxtor'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 Secondary
Purchasers or any 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, executed copies of Lock Box Agreements with
respect to
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each new Lock Box Bank and each new Lock Box Account and delivered an
updated Schedule I hereto to the Agent, 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.
(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, Maxtor and the Selling Affiliates, necessary
to reflect such change or use and to continue the perfection of the
ownership interests or security interests in the Seller Assets, and (ii)
new Lock Box Agreements 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-1 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) Other Adverse Claims. Except as otherwise provided in the
Purchase Documents, create or suffer to exist any Adverse Claim upon or
with respect to any of the Seller's property, or assign any right to
receive income, to secure any Debt of any Person.
(i) Debt. Except as otherwise provided in the Purchase
Documents, create, incur, assume or suffer to exist any Debt.
(j) Contingent Obligations. Except as otherwise provided in the
Purchase Documents, create, incur, assume or suffer to exist any
Contingent Obligation.
(k) Distributions, Etc. Declare or make any dividend payment or
other distribution of assets, properties, cash, rights, obligations or
securities on account of any interest in the Seller, or return any
capital to its owners as such, or purchase, retire, defease, redeem or
otherwise acquire for value of make any payment in respect of any
interest in the Seller or any warrants, rights or options to acquire any
such interest, now or hereafter outstanding, other than, in any such
case, as shall have been duly authorized by all necessary action of the
Seller and in accordance with applicable law, provided that no event has
occurred and is continuing, or would result from such declaration,
dividend,
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distribution, return, purchase, retirement, defeasance, redemption,
acquisition or payment, which constitutes an Event of Termination or an
Incipient Event of Termination.
(1) Transactions with Affiliates. Enter into or permit to exist
any transaction (including, without limitation, the purchase, sale,
lease or exchange of any property or the rendering of any service) with
Maxtor or any other Affiliate of the Seller, other than on terms that
are fair and reasonable in the circumstances and that reasonably
approximate an arm's-length transaction between unaffiliated parties.
(m) Receivables Contribution and Sale Agreement. (i) Cancel or
terminate the Receivables Contribution and Sale Agreement or any Selling
Affiliate Receivables Contribution and Sale Agreement or consent to or
accept any cancellation or termination thereof, (ii) amend or otherwise
modify any term or condition of the Receivables Contribution and Sale
Agreement or any Selling Affiliate Receivables Contribution and Sale
Agreement or give any consent, waiver or approval thereunder, (iii)
waive any default under or breach of the Receivables Contribution and
Sale Agreement or any Selling Affiliate Receivables Contribution and
Sale Agreement, or (iv) take any other action under the Receivables
Contribution and Sale Agreement or any Selling Affiliate Receivables
Contribution and Sale Agreement not required by the terms thereof that
would impair the value of any Seller Assets or the rights or interests
of the Seller thereunder or of the Agent or any owner or Indemnified
Party hereunder or thereunder.
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent. (a) The Subject
Receivables shall be serviced, administered and collected by the Person (the
"Collection Agent") designated to do so from time to time in accordance with
this Section 6.01. Until the Agent designates a new Collection Agent, Maxtor is
hereby designated as, and hereby agrees to perform the duties and obligations
of, the Collection Agent pursuant to the terms hereof. The Agent may, at any
time, designate as Collection Agent any Person (including itself) to succeed
Maxtor or any successor Collection Agent upon such terms and conditions as the
Agent may require. The Collection Agent may, with the prior consent of the
Agent, subcontract with any other Person to service, administer or collect the
Subject Receivables, provided that the Person with whom the Collection Agent so
subcontracts shall not become the Collection Agent hereunder and the Collection
Agent shall remain liable for the performance of the duties and obligations of
the Collection Agent pursuant to the terms hereof. The Agent hereby consents to
the subcontracting by Maxtor, as Collection Agent, with each Selling Affiliate
from time to time to service, administer and collect the Subject Receivables
originally owed to such Selling Affiliate, subject to the proviso to the
preceding sentence, and provided that the Agent may at any time require the
Collection Agent to, and the Collection Agent shall at the Agent's request,
terminate such subcontracting with such Selling Affiliate.
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(b) The Collection Agent is hereby authorized and empowered to instruct
the Trustee to make withdrawals and payments from the Concentration Account,
subject to the limitations set forth in Section 6.06(a) and as otherwise set
forth in this Agreement.
SECTION 6.02. Duties of Collection Agent. (a) The Collection Agent shall
(unless the Agent directs otherwise and subject to the Agent's direction and
control to the extent consistent with the applicable Credit and Collection
Policy) take or cause to be taken all such actions as may be necessary or
advisable to collect each Subject Receivable from time to time, all in
accordance with applicable laws, rules and regulations, with reasonable care and
diligence, and in accordance with the applicable Credit and Collection Policy.
Each of the Seller, the Owners and the Agent hereby appoints as its agent the
Collection Agent, from time to time designated pursuant to Section 6.01, to
enforce its respective rights and interests in and under the Seller Assets. In
no event shall the Collection Agent be entitled to make the Secondary
Purchasers, the Agent or any Owner a party to any litigation without the express
prior written consent of such party. Notwithstanding anything to the contrary
contained herein, the Agent shall have the absolute and unlimited right to
direct the Collection Agent to commence or settle any legal action or proceeding
to enforce collection of Subject Receivables to the extent consistent with the
applicable Credit and Collection Policy.
(b) The Collection Agent shall instruct the Trustee in writing to set
aside and hold in trust for the account of the Seller and each Owner their
respective allocable shares of the Collections of Subject Receivables in
accordance with Section 2.05. The Collection Agent shall take all other actions
required to be taken by it under this Agreement, including, without limitation,
delivery of the Daily Report and Purchaser Report pursuant to Section 2.06.
(c) The Collection Agent may not extend the maturity or adjust the
Outstanding Balance, or otherwise amend or modify the terms, of any Subject
Receivable or amend, modify or waive any term or condition, or terminate or
permit the termination, of any Contract related thereto; provided, however, that
if and so long as no Event of Insecurity shall have occurred and be continuing,
and unless the Agent shall have otherwise notified Maxtor, Maxtor, while it is
the Collection Agent, may, in accordance with the Credit and Collection Policy,
extend the maturity of any Defaulted Receivable as Maxtor may determine to be
appropriate to maximize Collections thereof.
(d) The Seller shall deliver to the Collection Agent, and the Collection
Agent shall hold in trust for the Seller and each Owner in accordance with their
respective interests, all documents, instruments and records (including, without
limitation, computer tapes or disks) which evidence or relate to Subject
Receivables.
(e) The Collection Agent, if other than the Seller, shall as soon as
practicable upon demand deliver to the Seller all documents, instruments and
records in its possession which evidence or relate to Receivables of the Seller
other dm Subject Receivables, and copies of documents, instruments and records
in its possession which evidence or relate to Subject Receivables.
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(f) The Collection Agent's authorization under this Agreement shall
terminate on the Collection Date.
SECTION 6.03. Rights of the Agent. (a) The Agent may, at any time after
the occurrence and during the continuance of any Event of Insecurity and at the
Seller's expense, notify the Obligors of Subject Receivables, or any of them, of
the ownership of Purchased Interests by the Owners.
(b) At any time following the designation of a Collection Agent other
than Maxtor pursuant to Section 6.01:
(i) The Agent may direct the Obligors of Subject Receivables, or
any of them, to make payment of all amounts due or to become due to the
Seller under any Subject Receivable directly to the Agent or its
designee.
(ii) The Seller shall, at the Agent's request and at the
Seller's expense, give notice of the ownership of Purchased Interests to
such Obligors and direct them to make such payments directly to the
Agent or its designee.
(iii) The Seller shall, at the Agent's request and at the
Seller's expense, (A) assemble all of the documents, instruments and
other records (including, without limitation, computer tapes and disks)
which evidence the Seller Assets, or which are otherwise necessary or
desirable to collect such Subject Receivables, and shall make the same
available to the Agent at a place selected by the Agent or its designee,
and (B) segregate all cash, checks and other instruments received by it
from time to time constituting Collections of Subject Receivables in a
manner acceptable to the Agent and shall, promptly upon receipt, remit
all such cash, checks and instruments, duly endorsed or with duly
executed instruments of transfer, to a Lock Box Account.
(iv) The Seller and Maxtor hereby irrevocably authorize the
Agent to take any and all steps in the Seller's, Maxtor's or the
respective Selling Affiliates' name and on behalf of the Seller and the
Owners, necessary or desirable, in the determination of the Agent, to
collect all amounts due under any and all Seller Assets, including,
without limitation, endorsing the Seller's, Maxtor's or such Selling
Affiliate's name on checks and other instruments representing
Collections, enforcing Subject Receivables and the related Contracts,
and adjusting, settling or compromising the amount or payment thereof,
in the same manner and to the same extent as the Seller, Maxtor or such
Selling Affiliate might have done absent the Purchases hereunder, and
the Seller and Maxtor hereby appoints the Agent as its attorney-in-fact
to carry out the intent and purpose of this subparagraph.
SECTION 6.04. Responsibilities of the Seller. Anything herein to the
contrary notwithstanding:
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(a) The Seller and the respective Selling Affiliates shall
perform all of their respective obligations under the Contracts related
to the Subject Receivables to the same extent as if Purchased Interests
had not been sold hereunder and the exercise by the Agent of its rights
hereunder shall not relieve the Seller or any Selling Affiliate from
such obligations or its obligations with respect to Subject Receivables;
and
(b) Neither the Agent nor the Owners shall have any obligation
or liability with respect to any Seller Assets, nor shall any of them be
obligated to perform any of the obligations of the Seller or any Selling
Affiliate thereunder.
SECTION 6.05. Further Action Evidencing Purchases. (a) The Seller agrees
that from time to time, at its expense, it will, and will cause the respective
Selling Affiliates to, promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that the Agent or any Owner may reasonably request, in order to perfect, protect
or more fully evidence the Purchased Interests, or to enable any of them or the
Agent to exercise and enforce any of their respective rights and remedies
hereunder or under the Assignments. Without limiting the generality of the
foregoing, the Seller will, and will cause the respective Selling Affiliates to,
upon the request of the Agent or any Owner: (i) execute and file such financing
or continuation statements, or amendments thereto or assignments thereof, and
such other instruments or notices, as may be necessary or desirable, or as the
Agent or any Owner may request, in order to perfect, protect or evidence such
Purchased Interests; (ii) at any time after the occurrence and during the
continuance of any Event of Insecurity (A) mark conspicuously each invoice
evidencing each Subject Receivable and the related Contract with a legend,
acceptable to the Agent, evidencing that such Purchased Interests have been sold
in accordance with this Agreement; and (B) mark its master data processing
records evidencing such Subject Receivables and related Contracts with such
legend.
(b) The Seller hereby authorizes the Agent to file one or more financing
or continuation statements, and amendments thereto and assignments thereof,
relating to all or any Seller Assets now existing or hereafter arising without
the signature of the Seller where permitted by law. A photocopy or other
reproduction of this Agreement or any financing statement covering all or any of
the Seller Assets shall be sufficient as a financing statement where permitted
by law.
(c) If the Seller fails to perform any agreement contained herein, the
Agent may itself perform, or cause performance of, such agreement, and the
expenses of the Agent incurred in connection therewith shall be payable by the
Seller under Section 10.01 or Section 13.06, as applicable.
SECTION 6.06. Establishment of Concentration Account and Lock Box
Accounts. (a) Concentration Account. On or prior to the Closing Date, the
Collection Agent, for the benefit of the Beneficiaries, shall establish and
maintain or cause to be established and maintained in the name of the Agent with
Bankers Trust Company a segregated trust account (such account being the
"Concentration Account" and such institution holding such account being the
"Concentration Account Bank"), such account bearing a designation clearly
indicating
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that the funds deposited therein are held for the benefit of the Beneficiaries.
The Agent shall possess all right, title and interest in and to all funds from
time to time on deposit in the Concentration Account and in all proceeds
thereof. The Concentration Account shall be under the sole dominion and control
of the Agent for the benefit of the Beneficiaries, and neither the Seller, nor
any Person claiming by, through or under the Seller, shall have any right, title
or interest in, or any right to withdraw any amount from, the Concentration
Account. Except as expressly provided in this Agreement, the Collection Agent
agrees that it shall have no right of set-off or banker's lien against, and no
right to otherwise deduct from, any funds held in the Concentration Account for
any amount owed to it by any Beneficiary. The Collection Agent shall cause
Collections to be deposited into the Concentration Account on each Business Day
as promptly as is reasonably practicable after receipt in a Lock Box Account,
and in any event no later than the day on which such Collections become
available funds in such Lock Box Account. The Seller will require Maxtor and the
Selling Affiliates, if any, to deposit any Collections received by it into a
Lock Box Account within two Business Days following the Business Day on which
such Collections are so received. Notwithstanding the foregoing, if and to the
extent that funds that are not Collections are deposited into the Concentration
Account, the Collection Agent may direct the Trustee in writing to withdraw such
funds from the Concentration Account and deposit them in the Seller's Account.
The Agent hereby authorizes the Trustee to make withdrawals and payments from
the Concentration Account, and to invest the funds in the Concentration Account,
in accordance with the provisions of this Agreement.
If, at any time, the institution holding the Concentration Account
ceases to be an Eligible Institution, the Collection Agent, upon obtaining
actual knowledge thereof, shall, within 15 Business Days (i) establish a new
Concentration Account meeting the conditions specified above with an Eligible
Institution, (ii) transfer any cash and/or any investments held in the old
Concentration Account or with respect thereto to such new Concentration Account
and (iii) in the case of any new Concentration Account, deliver to all Lock Box
Banks new Lock Box Agreements (with copies thereof to the Trustee) referring to
such new Concentration Account, and from the date such new Concentration Account
is established, it shall be the "Concentration Account". Pursuant to the
authority granted to the Collection Agent in Section 6.02, the Collection Agent
shall have the power to instruct the Trustee to make withdrawals and payments
from the Concentration Account for the purposes of carrying out the Collection
Agent's or the Trustee's duties specified in this Agreement.
Funds on deposit in the Concentration Account, shall, at the written
direction of the Collection Agent, be invested by the Trustee or the Eligible
Institution maintaining such accounts in Available Investments as instructed by
the Collection Agent in writing (which may be a standing instruction). All such
Available Investments shall be held by the Trustee or the Eligible Institution
maintaining such accounts for the benefit of the Beneficiaries. Such funds shall
be invested in Available Investments that will mature so that funds will be
available on or before the close of business on the Business Day next preceding
the following Settlement Date in amounts sufficient for the Trustee to make each
distribution required under this Agreement on the next Settlement Date. All
interest and other investment earnings (net of losses and investment expenses)
received on funds on deposit in the Concentration Account, to the extent
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such investment income is not needed to pay the Beneficiaries on such Settlement
Date, shall be added to the Concentration Account and allocated in accordance
with Section 2.06. The Trustee is hereby authorized, unless otherwise directed
in writing by the Collection Agent, to effect transactions in Available
Investments through a capital markets affiliate of the Trustee.
(b) Lock Box Accounts. On or prior to the Closing Date, the Collection
Agent for the benefit of the Beneficiaries, shall establish and maintain or
cause to be established and maintained in the name of the Agent with an Eligible
Institution, lock boxes or segregated accounts (each such lockbox and account, a
"Lock Box Account"). Obligors will be directed to remit payments with respect to
their Receivables to a Lock Box Account. The Lock Box Accounts shall be under
the sole dominion and control of the Agent for the benefit of the Beneficiaries,
and neither the Seller, nor any Person claiming by, through or under the Seller,
shall have any right, title or interest in, or any right to withdraw any amount
from, any Lock Box Account. The Collection Agent shall cause the Agent to
transfer Collections to the Concentration Account in the manner set forth in
Section 6.06(a). Each Lock Box Account shall be maintained with documentation
and instructions in form and substance satisfactory to the Trustee and the
Agent. Such documentation shall provide, among other things, that available
amounts shall be immediately transferred to the Concentration Account. The
Collection Agent will not (i) make any change in the name, address or ABA number
of any Lock Box Account Bank, the account number of any Lock Box Account, the
name, address or ABA number of any Concentration Account Bank, or the account
number for any Concentration Account from that set forth in Schedule I hereto or
(ii) amend any instruction to any Obligor or any instruction to or agreement
with any Lock Box Bank with respect to any Lock Box Account (other than to (A)
redirect payments of Obligors to a different Lock Box Account or to the
Concentration Account, (B) close unused Lock Box Accounts and (C) open new Lock
Box Accounts if the Trustee shall have received executed copies of the Lock Box
Agreements with each new Lock Box Bank, and an updated Schedule I) unless the
Trustee (if directed in writing to do so by the Agent), shall have given its
prior consent to such change or amendment. Upon notice from any Lock Box Bank
that any Lock Box Account or Lock Box Agreement is to be terminated by such Lock
Box Bank, the Collection Agent shall forthwith (and in any event within 10 days
after receipt of such notice), (i) establish a new Lock Box Account (if the Lock
Box Account in respect of which the notice of termination has been given is the
only Lock Box Account hereunder), and (ii) instruct each Obligor to make all
payments made by it to the Collection Agent thereafter to a Lock Box Account in
respect of which no notice of termination has been given, or, if there is no
such Lock Box Account, to the Concentration Account.
The Collection Agent hereby agrees and acknowledges that (i) it has
executed and delivered to the Trustee and the Agent a letter and executed
acknowledgment thereto substantially in the form of Exhibit C hereto (each, a
"Lock Box Agreement" as the case may be), addressed to and executed by each
banking institution or other Person with which a Lock Box Account is maintained
(each such banking institution with which a Lock Box Account is maintained being
a "Lock Box Bank") and (ii) it shall execute and deliver a substantially similar
Lock Box Agreement, prior to the establishment by it of any additional or
alternative Lock Box Account. The Collection Agent hereby agrees, and the
Trustee and the Agent hereby each acknowledges, that the execution and delivery
of each Lock Box Agreement transfers all right,
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title and interest in all monies, securities and instruments in the applicable
Lock Box Account to the Agent.
SECTION 6.07. Establishment of Trustee's Account and Cure Account (a)
(i) The Collection Agent, for the benefit of the Beneficiaries, shall establish
and maintain in the name of the Trustee, with an Eligible Institution a
segregated trust account accessible only by the Trustee (the "Trustee's
Account"), which shall be identified as the "Trustee's Account for the Maxtor
Receivables Purchase and Sale Agreement" and shall bear a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Beneficiaries. The Trustee's Account initially shall be established at Bankers
Trust Company and thereafter may only be established or maintained at an
Eligible Institution.
(ii) At the written direction of the Collection Agent (which may be a
standing direction), funds on deposit in the Trustee's Account shall be invested
by the Trustee in Available Investments selected by the Collection Agent that
will mature so that such funds will be available on or before the close of
business on the Business Day next preceding the following Settlement Date. All
such Available Investments shall be held by the Trustee for the benefit of the
Beneficiaries. On each Settlement Date, all interest and other investment
earnings (net of losses and investment expenses) on funds on deposit in the
Trustee's Account shall be applied as set forth in Section 2.06. Funds deposited
in the Trustee's Account on a Business Day which immediately precedes a
Settlement Date upon the maturity of any Available Investments are not required
to be invested overnight.
(b) (i) The Collection Agent, for the benefit of the Beneficiaries,
shall establish and maintain in the name of the Trustee a segregated trust
account accessible only by the Trustee (the "Cure Account"), which shall be
identified as the "Cure Account for the Maxtor Receivables Corporation
Receivables Purchase and Sale Agreement" and shall bear a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Beneficiaries. The Cure Account shall initially be established with Bankers
Trust Company and thereafter may only be established or maintained at an
Eligible Institution.
(ii) At the written direction of the Collection Agent (which may be a
standing direction), funds on deposit in the Cure Account shall be invested by
the Trustee in Available Investments selected by the Collection Agent that will
mature so that such funds will be available on or before the close of business
on the Business Day next preceding the following Settlement Date. All such
Available Investments shall be held by the Trustee for the benefit of the
Beneficiaries. On each Settlement Date, all interest and other investment
earnings (net of losses and investment expenses) on funds on deposit in the Cure
Account shall be applied as set forth in Section 2.06. Funds deposited in the
Cure Account on a Business Day which immediately precedes a Settlement Date upon
the maturity of any Available Investments are not required to be invested
overnight.
(c) (i) The Trustee shall possess all right, title and interest in and
to all funds on deposit from time to time in, and all Available Investments
credited to, the Trustee's Account and the Cure Account (collectively, the
"Trustee Accounts") and in all proceeds
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thereof. The Trustee Accounts shall be under the sole dominion and control of
the Trustee for the benefit of the Beneficiaries. If, at any time, any Trustee
Account is held by an institution other than an Eligible Institution, the
Trustee (or the Collection Agent, at the direction of the Trustee and on its
behalf) shall within 10 Business Days establish a new Trustee Account meeting
the conditions specified in paragraph (a)(i) or (b)(i) above, as applicable, and
shall transfer any cash and/or any investments to such new Trustee Account.
Neither the Seller, the Collection Agent nor any Person or entity claiming by,
through or under the Seller, the Collection Agent or any such Person or entity
shall have any right, title or interest in, or any right to withdraw any amount
from, any Trustee Account, except as expressly provided herein. Schedule VI
identifies each Trustee Account by setting forth the identification name of such
account, the account number of each such account, the account designation of
each such account and the name and location of the institution with which such
account has been established. If a substitute Trustee Account is established
pursuant to this Section 6.06, the party establishing such substitute Trustee
Account shall promptly provide to the Collection Agent or the Trustee, as
applicable, an amended Schedule VI, setting forth the relevant information for
such substitute Trustee Account.
(ii) Notwithstanding anything herein to the contrary, the Collection
Agent shall have the power, revocable by the Trustee at the direction of the
Agent, to instruct the Trustee in writing to make withdrawals and payments from
the Trustee Accounts for the purposes of carrying out the Collection Agent's or
Trustee's duties hereunder.
(d) At no time may greater than 10% of the funds on deposit in any
Trustee Account be invested in Available Investments (other than obligations of
the United States government or agencies the obligations of which are guaranteed
by the United States government and money market funds) of any single entity or
its Affiliates. Nothing herein shall be construed to impose any obligation on
the Trustee to monitor compliance with this Section 6.07(d).
(e) Any request by the Collection Agent to invest funds on deposit in
any Trustee Account shall be in writing (which may be a standing instruction)
and shall state that the requested investment is an Available Investment.
(f) The Trustee is hereby authorized, unless otherwise directed by the
Collection Agent, to effect transactions in Available Investments through a
capital markets Affiliate of the Trustee.
(g) In no event shall the Trustee be liable for the selection of
Available Investments or for investment losses incurred thereon. The Trustee
shall have no liability in respect of losses incurred as a result of the
liquidation of any investment prior to its stated maturity or the failure of the
Collection Agent to provide timely written investment direction. The Trustee
shall have no obligation to invest or reinvest any amounts held hereunder in the
absence of written investment direction.
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(h) The Trustee will periodically report to the Collection Agent, the
Seller and the Agent from time to time on such investments, and at such other
times that are reasonably requested by the Seller or the Collection Agent.
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
Company or Maxtor or any Selling Affiliate or any of their respective
Affiliates) shall fail to perform or observe any term, covenant or
agreement hereunder (other dm 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 Company or Maxtor 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 any
Purchase Document when due, in the case of any payment in respect of any
Purchase Price or Yield (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 Yield; or
(b) The Seller, Maxtor or the Company shall fail to perform or
observe any term, covenant or agreement contained in Section 5.01 (i)
(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 Receivables Contribution and Sale 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(l), 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 Receivables Contribution and Sale 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
Receivables Contribution and Sale 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, Maxtor, the Company or any Selling Affiliate (or any of their
respective officers) under or in
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connection with any Purchase Document shall prove to have been incorrect
in any material respect when made; or
(d) The Seller, the Company, Maxtor 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, the Company,
Maxtor or any Selling Affiliate, as applicable, by the Agent; or
(e) The Seller, the Company, Maxtor or any Selling Affiliate
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 in the Seller Assets, or the Agent, for
the benefit of the Beneficiaries, shall cease to have a valid and
perfected flat priority security interest in the Seller Assets, or the
Assignment 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 the Seller Assets or valid
and perfected first priority security interest therein; or
(g) The Seller, the Company, Maxtor, HEA, HEI or any Selling
Affiliate 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, the Company,
Maxtor or any Selling Affiliate 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
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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,
the Company, Maxtor or any Selling Affiliate shall take any corporate
action to authorize any of the actions set forth above in this
subsection (g); or
(h) The average Default Termination Ratio for any Purchased
Interest as at the last day of any three successive Fiscal Months most
recently ended shall exceed 6.0%, or the average Delinquency Ratio for
any Purchased Interest as at the last day of any three successive Fiscal
Months most recently ended shall exceed 10.0%, or the average Loss-to
Liquidation Ratio for any Purchased Interest as at the last day of any
three successive Fiscal Months most recently ended shall exceed 1.0%, or
the average Dilution Ratio for any Purchased Interest as at the last day
of any three successive Fiscal Months most recently ended shall exceed
9.0%; 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, the Company, Maxtor or any Selling
Affiliate to collect Subject Receivables or the ability of the Seller,
the Company, Maxtor 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, the Company,
Maxtor or any Selling Affiliate or any ERISA Affiliate of either thereof
related to such ERISA Event) exceeds $10,000,000; or
(k) The Seller, the Company, Maxtor 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, the Company, Maxtor 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 payment exceeding
$10,000,000 per annum; or
(1) The Seller, the Company, Maxtor 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, the Company, Maxtor 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
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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, the Company, Maxtor or any Selling
Affiliate, as applicable to such Purchase Document, or the Seller, the
Company, Maxtor or any Selling Affiliate, as applicable, shall so state
in writing, or any Purchase Document shall cease to be in full force and
effect; or
(n) The Company shall, at any time, together with HEI, HMM and
HC cease to own directly or indirectly (i) at least 30% of the issued
and outstanding shares of the capital stock of Maxtor, (ii) at least 30%
of the issued and outstanding shares of the capital stock of each
Selling Affiliate, or (iii) at least 51% of the issued and outstanding
shares of the capital stock of Maxtor while any Person (other than HEI,
the Company, or HC) directly or indirectly owns 5% or greater of the
issued and outstanding shares of the capital stock of Maxtor, or Maxtor
shall, at any tixne, cease to own 100% of the issued and outstanding
shares of the capital stock of the Seller; or
(o) Any of the Company's long-term public senior debt securities
shall be rated less than B- or B3 by S&P and Moody's, respectively or,
if such securities are not rated by S&P and Moody's, such securities
have a deemed rating of at least B- and B3, as determined by the Agent
in its sole discretion; or
(p) the Seller's constituent documents shall be amended,
supplemented or otherwise modified; or
(q) the Net Subject Receivables Balance shall, for a period of
five (5) consecutive Business Days, be less than the Required Net
Subject Receivables Balance; or
(r) the sum of the Purchased Interests shall equal or exceed 90%
until the Agent is satisfied with the Daily Report procedures hereunder,
and 100% thereafter.
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 (with a copy of such notification
to the Trustee) 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, the Company, Maxtor 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, and no further
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Purchases shall be made hereunder. 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 VIII
THE AGENT
SECTION 8.01. Authorization and Action. Each Owner hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under the Purchase Documents as are delegated to the Agent by the
terms hereof and thereof, together with such powers as are reasonably incidental
thereto.
SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them as Agent under or in connection with this
Agreement any other Purchase Document or any instrument or document furnished
pursuant hereto (including, without limitation, the Agent's servicing,
administering or collecting Subject Receivables as Collection Agent pursuant to
Section 6.01), except for its or their own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, the Agent: (i) may
consult with legal counsel (including counsel for the Seller, Maxtor, the
respective Selling Affiliates or the Company), independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (ii) makes no warranty or representation to any
Owner and shall not be responsible to any Owner for any statements, warranties
or representations (whether written or oral) made in or in connection with any
Purchase Document or any other instrument or document furnished pursuant hereto;
(iii) shall not have any duty to ascertain or to inquire as to the performance
or observance of any of the terms, covenants or conditions of any Purchase
Document or any other instrument or document furnished pursuant hereto on the
part of the Seller, Maxtor, the respective Selling Affiliates or the Company or
to inspect the property (including the books and records) of the Seller, Maxtor,
the respective Selling Affiliates or the Company; (iv) shall not be responsible
to any Owner for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of any Purchase Document or any other
instrument or document furnished pursuant hereto or thereto or any Subject
Receivable or Purchased Interest; and (v) shall incur no liability under or in
respect of any Purchase Document or any other instrument or document furnished
pursuant hereto by acting upon any notice (including notice by telephone),
consent, certificate or other instrument or writing (which may be by telecopier,
telegram, cable or telex) believed by it to be genuine and signed or sent by the
proper party or parties.
SECTION 8.03. CNAI and Affiliates. With respect to any Purchased
Interest owned by it, CNAI shall have the same rights and powers under this
Agreement as any other Owner and may exercise the same as though it were not the
Agent. CNAI and its Affiliates may
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generally engage in any kind of business with the Seller, Maxtor, the respective
Selling Affiliates or the Company or any Obligor, any of their respective
Affiliates and any Person who may do business with or own securities of the
Seller, Maxtor, the respective Selling Affiliates or the Company or any Obligor
or any of their respective Affiliates, all as if CNAI were not the Agent and
without any duty to account therefor to the Owners.
ARTICLE IX
ASSIGNMENT OF PURCHASED INTERESTS
SECTION 9.01. Assignment. (a) Any Secondary Purchaser may assign to any
Assignee, and any such Assignee may assign to any other Assignee, all or any
portion of any of its Purchased Interests pursuant to a written assignment with
respect to each such Purchased Interest in such form, and upon such other terms
and conditions, if any, as the parties thereto may mutually agree. Upon any such
assignment, (i) the Assignee shall become the Owner of such Purchased Interest
or portion thereof for all purposes of the Purchase Documents and any other
instrument or document furnished pursuant hereto and (ii) the Owner assignor
thereof shall relinquish its rights with respect to such Purchased Interest or
portion thereof for all purposes of the Purchase Documents and any other
instrument or document furnished pursuant hereto. The parties to each such
assignment shall deliver to the Agent the related written assignment, duly
executed by such parties, and each assignor shall promptly execute and deliver
all further instruments and documents, and take all other action, that the
Assignee may reasonably request in order to perfect, protect or more fully
evidence the Assignee's right, title and interest in and to such Purchased
Interest, and to enable the Assignee to exercise or enforce any rights under the
Purchase Documents and any other instrument or document furnished pursuant
hereto with respect to such Purchased Interest or portion thereof The Agent
shall (i) provide notice to the Seller of any assignment of a Purchased Interest
or portion thereof hereunder and (ii) maintain at its office referred to in
Section 13.02 a copy of each written assignment delivered to it and a register
for the recordation of the names and addresses of the Owners, and the Purchased
Interests or portions thereof owned by such Owners, from time to time. The
entries in such register shall constitute prima facie evidence of the accuracy
of the information contained therein, and the Seller, the Agent, the Secondary
Purchasers and the Owners may treat each Person whose name is recorded therein
as an Owner hereunder for all purposes of this Agreement. Such register shall be
available for inspection by the Seller or any Owner at any reasonable time and
from time to time upon reasonable prior notice.
(b) By executing and delivering an assignment (in the case of an Owner
assignor) and executing and accepting an assignment (in the case of an
Assignee), the Owner assignor thereunder and the Assignee thereunder confirm and
agree with each other and the other parties hereto as follows: (i) other dm as
provided in such assignment, such assigning Owner makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any other Purchase Document or any other instrument or document furnished
pursuant hereto or thereto or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of
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this Agreement or any other Purchase Document or any other instrument or
document furnished pursuant hereto or thereto, or the perfection, priority or
value of any ownership or security interest created or purported to be created
hereunder or under any other Purchase Document; (ii) such assigning Owner makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of the Seller or Maxtor or the performance or observance by
the Seller or Maxtor of any of its obligations under this Agreement, or any
other Purchase Document or any other instrument or document furnished pursuant
hereto or thereto; (iii) such Assignee confirms that it has received a copy of
this Agreement, each other Purchase Document and any other instrument or
document furnished pursuant hereto or thereto, together with copies of the most
recent annual and periodic financial statements delivered pursuant to clauses
(a) and (b) of Section 5.02 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and to purchase such Purchased Interest; (iv) such Assignee
will, independently and without reliance upon the Agent, any of its Affiliates,
such assigning Owner or any other Owner and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
Assignee appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement, the other Purchase
Documents and any other instrument or document furnished pursuant hereto or
thereto as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vi) such Assignee appoints as
its agent the Collection Agent from time to time designated pursuant to Section
6.01 to enforce its respective rights and interests in and under the Seller
Assets.
SECTION 9.02. Annotation of the Assignment. The Agent shall annotate the
Assignment to reflect any assignments made pursuant to Section 9.01 or
otherwise.
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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 and expenses, but excluding (a) any amount to the
extent resulting from gross negligence or willful misconduct on the part of such
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 any transaction contemplated thereby, the ownership of Purchased
Interests, the use of proceeds of any Purchase or deposit of Owner Collections
to the Seller's Account or in respect of any Seller Asset (all of the foregoing,
to the extent not so excluded, being collectively referred to as "Indemnified
Amounts"). Without limiting or being limited by the foregoing and whether or not
any of the transactions contemplated hereby are consummated, the Seller shall
pay on demand to each Indemnified Party any and all amounts necessary to
indemnify such Indemnified Party from and against all Indemnified Amounts
relating to, resulting from, or which would not have occurred but for:
(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, Maxtor, the Company 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, Maxtor or any Selling Affiliate
to comply with any applicable law, rule or regulation with respect to
any Seller Asset, or the nonconformity of any Seller Asset with any such
applicable law, rule or regulation;
(iv) the failure to either (a) vest in the Owner of a Purchased
Interest a valid and perfected first priority undivided percentage
ownership interest, to the extent of each Purchased Interest, in each
Seller Asset; or the failure to (b) vest in the Agent, for the benefit
of the Beneficiaries, a valid and perfected first priority security
interest in any Seller Asset; or the failure of the Seller to have
obtained a first priority perfected ownership interest in the Seller
Assets transferred or purported to be transferred to the Seller under
the Receivables Contribution and Sale Agreement or any Selling Affiliate
Receivables Contribution and Sale Agreement, free and clear of any
Adverse Claim;
(v) the failure of the Seller, Maxtor or any Selling Affiliate
to have filed, or any delay by the Seller, Maxtor or any Selling
Affiliate in filing, financing statements or
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other similar instruments or documents under the UCC of any applicable
jurisdiction or other applicable laws with respect to any Seller Asset
at any time;
(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, the Company, Maxtor 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 deposit to the Seller's
Account or the ownership of Purchased Interests or the security or in
respect of any Receivable, Related Security, Contract, Collections or
Additional Assigned Rights, 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, Maxtor, the Company, any
Selling Affiliate or any Affiliate of any thereof;
(x) the failure to pay when due any taxes payable by the Seller,
the Company, Maxtor 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, Maxtor 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. The indemnification
provisions of this Section 10.01 shall survive the termination of this
Agreement.
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ARTICLE XI
THE TRUSTEE
SECTION 11.01. Duties of the Trustee. (a) The Trustee undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement, and no implied duties or covenants shall be read into this Agreement
against the Trustee.
(b) The Trustee, upon receipt of any resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
substantially conform to the requirements of this Agreement. The Trustee shall
give prompt written notice to the Seller and the Agent of any material lack of
conformity of any such instrument to the applicable requirements of this
Agreement discovered by the Trustee.
(c) Subject to Section 11.01(a), no provision of this Agreement shall be
construed to relieve the Trustee from liability for its own grossly negligent
action, its own grossly negligent failure to act or its own willful misconduct;
provided, however, that:
(i) the Trustee shall not be personally liable for an error of
judgment made in good faith by any Responsible Official of the Trustee,
unless it shall be proved that the Trustee was grossly negligent in
ascertaining the pertinent facts;
(ii) the Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of the Agent relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee in accordance with the terms of this Agreement, or exercising
any trust or power conferred upon the Trustee under this Agreement; and
(iii) the Trustee shall not be charged with knowledge of any
failure by the Collection Agent to comply with any obligations of the
Collection Agent contained herein or of any Event of Termination unless
a Responsible Official of the Trustee obtains actual knowledge of such
failure or such event or the Trustee receives written notice of such
failure or such event from the Collection Agent, the Agent, any Owner or
any Bank.
(d) The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights or powers if there are
reasonable grounds for believing that the repayment of such funds or indemnity
satisfactory to it against such risk or liability is not reasonably assured to
it and none of the provisions contained in this Agreement shall in any
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event require the Trustee to perform, or be responsible for the manner of
performance of, any obligations of the Collection Agent under this Agreement.
(e) Except for actions expressly authorized by this Agreement, the
Trustee shall take no action reasonably likely to impair the interests of the
Agent (for the benefit of the Owners) m any Receivable now existing or hereafter
created or impair the value of any Receivable now existing or hereafter created.
(f) The Trustee shall have no responsibility or liability for the
selection of, or investment losses on, Available Investments. The Trustee shall
have no liability in respect of losses incurred as a result of the liquidation
of any investment prior to its stated maturity or the failure of the relevant
party to provide timely written investment direction.
(g) The Trustee shall, with respect to each Daily Report (upon which the
Trustee may conclusively rely and be fully protected in acting or refraining
from acting in such reliance), (A) compare the Collections reported that day by
the Collection Agent to the actual Collections deposited to the Lock Box
Accounts and the Concentration Account, and (B) perform each of the account
transfers set forth in the Daily Report as directed in writing by the Collection
Agent;
(h) The Trustee shall with respect to each Purchaser Report (upon which
the Trustee may conclusively rely and be fully protected in acting or refraining
from acting in such reliance) examine such Purchaser Report for indications of
the occurrence of any Events of Termination arising from under clause (h) of
Section 7.01 for positive indications of actual Events of Termination.
(i) Notwithstanding any other provision of this Agreement, upon
discovery by a Responsible Official of Trustee of any material discrepancy
between the amounts reported by the Collection Agent and the amounts calculated
as provided above, the Trustee shall promptly notify the Collection Agent and
the Agent thereof.
SECTION 11.02. Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 11.01:
(a) the Trustee may conclusively rely on and shall be fully
protected in acting on, or in refraining from acting in accord with, any
resolution, officer's certificate, certificate of auditors or any other
certificate, statement, instrument, opinion, report, notice, consent,
order, appraisal, bond or other paper or document believed by it in good
faith to be genuine and to have been signed or presented to it pursuant
to this Agreement by the proper party or parties;
(b) the Trustee may consult with counsel and, as a condition to
taking, suffering or omitting to take any action, may demand an opinion
of counsel and any such opinion of counsel shall be fall and complete
authorization and protection in respect of
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any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such opinion of counsel;
(c) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation hereunder or in relation hereto, at the
request, order or direction of any of the Beneficiaries, unless such
Beneficiaries shall have offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which may
be incurred therein or thereby;
(d) subject to Section 11.01(c), the Trustee shall not be
personally liable for any action taken, suffered or omitted by it in
good faith and believed by it to be authorized or within the discretion
or rights or powers conferred upon it by this Agreement;
(e) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, approval, bond or other paper or document unless requested in
writing so to do by the Agent;
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys, custodians or nominees, and the Trustee
shall not be responsible for any misconduct or negligence on the part
of, or for the supervision of any such agent, attorney, custodian or
nominee appointed with due care by it hereunder;
(g) except as required by Section 11.01, the Trustee shall not
be required to make any initial or periodic examination of any documents
or records related to the Receivables for the purpose of establishing
the presence or absence of defects, the compliance by the Seller with
its representations and warranties or for any other purpose; and
(h) nothing in this Agreement shall be construed to require the
Trustee to act as a guarantor of the Collection Agent's performance.
SECTION 11.03. Trustee Not Liable for Recitals in Certificates or
Receivables. The Trustee assumes no responsibility for the correctness of the
recitals contained herein. Except as set forth in Section 11.12, the Trustee
makes no representations as to the validity or sufficiency of this Agreement or
of any Receivable or related document. The Trustee shall not be accountable for
the use or application of any funds paid to the Seller in respect of the
Receivables or deposited in or withdrawn from the Concentration Account, any
Lock Box Account, the Seller's Account, or any other account hereafter
established in accordance with the terms of this Agreement. The Trustee shall at
no time have any responsibility or liability for or with respect to the
legality, validity and enforceability of any security interest in any Receivable
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or the perfection and priority of such security interest or the maintenance of
any such perfection and priority.
SECTION 11.04. Trustee May Own Purchased Interests. The Trustee in its
individual or any other capacity may become the owner or pledgee of Purchased
Interests and may otherwise deal, and transact banking business, with the
Collection Agent and the Seller with the same rights as it would have if it were
not the Trustee.
SECTION 11.05. Compensation: and Indemnification: Trustee's Expenses.
(a) The Trustee shall be entitled to receive a monthly Trustee's fee (which fee,
to the extent permitted by applicable law, shall not be limited by any provision
of law, such fee being the "Trustee's Fee") in respect of each Fiscal Month (or
portion thereof) from the Closing Date hereunder until the Facility Termination
Date, payable in arrears on each Settlement Date in an amount agreed upon in
writing by the Trustee and the Seller. The Trustee's Fee shall be payable,
first, from amounts distributed pursuant to Section 2.06, second, to the extent
not paid from such amounts, by the Seller, and third, to the extent not paid
from such amounts or by the Seller, by the Collection Agent. When the Trustee
incurs expenses or renders services in connection with bankruptcy, insolvency,
reorganization or similar proceedings affecting any Person, such expenses
(including the reasonable fees and expenses of its counsel) and the compensation
for such services are intended to constitute expenses of administration under
any bankruptcy law or law relating to creditors' rights generally.
(b) Without limiting any of the rights the Trustee has under Section
10.01 the Seller shall indemnify the Trustee in its individual capacity and any
of its officers, directors, employees and agents against any and all loss,
liability or expense (including reasonable attorneys' fees) incurred by it in
connection with the performance of its duties under this Agreement and the other
Purchase Documents except any loss, liability or expense resulting from the
gross negligence or willful misconduct of such Indemnified Party.
(c) Expenses. The Seller will pay or reimburse the Trustee upon its
request on at least 5 Business Days' notice providing reasonable detail, and if
the Seller shall fail to do so, the Collection Agent will so pay or reimburse
the Trustee (with a right to reimbursement from the Seller), and if both the
Seller and the Collection Agent shall fail to do so, the Agent will have the
right, but not the obligation, to so pay or reimburse the Trustee (with a right
to reimbursement from the Seller), for all reasonable expenses, disbursements
and advances incurred or made by the Trustee in accordance with any of the
provisions of this Agreement or in connection with any amendment hereto
(including the reasonable fees and expenses of its agents, any co-trustee and
counsel and fees incurred in connection with an Event of Termination) except any
such expense, disbursement or advance as may arise from its gross negligence or
willful misconduct. The Seller's and Collection Agent's covenant provided in
this Section 11.05 shall survive the termination of this Agreement.
SECTION 11.06. Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times be an Eligible Institution. If the Trustee
publishes reports of condition at least annually, pursuant to law or to the
requirements of any supervising or examining authority, then,
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for the purpose of this Section 11.06, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 11.06, the Trustee shall resign immediately in the manner and with the
effect specified in Section 11.07.
SECTION 11.07. Resignation or Removal of Trustee. (a) The Trustee may at
any time resign and be discharged from its obligations hereunder by giving 30
days' written notice thereof to the Seller, the Agent and the Collection Agent.
Upon receiving such notice of resignation, the Collection Agent shall promptly
appoint a successor trustee acceptable to the Agent by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor trustee. If no successor trustee shall
have been so appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section II. 06 and shall fail to resign after written
request therefor by the Collection Agent or if at any time the Trustee shall be
legally unable to act, or shall be adjudged as bankrupt or insolvent, or if a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Collection Agent may remove the Trustee and promptly appoint a successor trustee
acceptable to the Agent by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor trustee.
(c) If at any time the Trustee shall fail to perform its obligations
under this Agreement, the Agent may remove the Trustee and direct the Collection
Agent to promptly appoint a successor trustee acceptable to the Agent by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor appointment; provided that if
all other procedures fail and a successor trustee has not accepted an
appointment pursuant to this Section 11.07(c) within 30 days after the Trustee
shall have received notice from the Agent of its intention to remove such
Trustee, the Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee.
(d) Notwithstanding anything herein to the contrary, any resignation or
removal of the Trustee and appointment of a successor trustee pursuant to any of
the provisions of this Section 11.07 shall not become effective until acceptance
of appointment by the successor trustee as provided in Section 11.08.
SECTION 11.08. Successor Trustee. (a) Any successor trustee appointed as
provided in Section 11.07 shall execute, acknowledge and deliver to the Seller,
the Collection Agent, the Agent and its predecessor Trustee an instrument
accepting such appointment hereunder, and thereupon the resignation or removal
of the predecessor Trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become
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fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Trustee
herein. The predecessor Trustee after payment of all monies due and owing to it,
shall deliver to the successor trustee all documents or copies thereof and
statements held by it hereunder, and the Seller and the predecessor Trustee
shall execute and deliver such instruments and do such other things as may
reasonably be required for fully and certainly vesting and confirming in the
successor trustee all such rights, powers, duties and obligations.
(b) No successor trustee shall accept appointment as provided in this
Section 11.08 unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 11.06.
SECTION 11.09. Merger or Consolidation of Trustee. Any Person into which
the Trustee may be merged or converted or with which it may be consolidated, or
any Person resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any Person succeeding to the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be eligible under the provisions of Section
11.06.
SECTION 11.10. Tax Returns. In the event any tax returns shall be
required to be filed by the Trustee in connection with any of the trust accounts
hereunder, the Collection Agent shall prepare or shall cause to be prepared any
such tax returns and shall remit such returns to the Trustee for signature at
least five days before such returns are due to be filed. The Trustee shall
promptly sign such returns and deliver such returns after signature to the
Collection Agent, and such returns shall be filed by the Collection Agent. In no
event shall the Trustee be liable for any liabilities, costs or expenses of the
Owners, the Banks or the Agent arising out of the application of any tax law,
including federal, state, foreign or local income or franchise taxes or any
other tax imposed on or measured by income (or any interest, penalty or addition
to tax with respect thereto or arising from a failure to comply therewith).
SECTION 11.11. Right of Agent to Direct Trustee. The Agent shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee under any Purchase Document or exercising
any trust or power conferred on Trustee under any Purchase Document; provided,
however that, subject to Section 11.01, the Trustee shall have the right to
decline to follow any such direction if the Trustee after receiving an opinion
of counsel determines that the action so directed may not lawfully be taken, or
if the Trustee in good faith shall, by any Responsible Official of the Trustee,
determine that the proceedings so directed would be illegal or involve it in
personal liability.
SECTION 11.12. Representations and Warranties of Trustee. The Trustee
represents and warrants that:
(a) the Trustee is a banking corporation duly organized, validly
existing and in good standing under the laws of the State of New York,
and has the power to own its assets and to transact the business in
which it is presently engaged;
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(b) the Trustee has the full power, authority and right to
execute, deliver and perform this Agreement, and has taken all necessary
action to authorize the execution, delivery and performance by it of
this Agreement; and
(c) this Agreement has been duly executed and delivered by the
Trustee and constitutes a legal, valid and binding obligation of the
Trustee enforceable against the Trustee in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and except as such enforceability may be
limited by general principles of equity, whether considered in a suit at
law or in equity).
SECTION 11.13. Maintenance of Office or Agency. The Trustee will
maintain at its expense in New York, New York an office or agency (the
"Corporate Trust Office") where its corporate trust office shall be administered
and where notices and demands to or upon the Trustee in respect of this
Agreement shall be served. The Trustee initially designates its office or agency
at Four Albany Street, New York, New York 10006, Attention: Corporate Trust and
Agency Group/Structured Finance, as such office. The Trustee will give prompt
written notice to the Seller, the Collection Agent and the Agent of any change
in the location of any such office or agency.
ARTICLE XII
CONSENT
SECTION 12.01. Consent to Assignment. Maxtor hereby acknowledges notice
of, and consents to, the assignment by the Seller under this Agreement of all
Additional Assigned Rights now existing or hereafter arising.
SECTION 12.02. Agreements as to Additional Assigned Rights. Maxtor and
the Seller agree for the benefit of the Agent and the Owners as follows:
(a) Maxtor shall make all payments to be made by it to the
Seller under or in connection with any Purchase Document, directly to
the Agent by payment to the account (account number 40517805) of the
Agent maintained at the office of Citibank, at 399 Park Avenue, New
York, New York, or otherwise in accordance with the instructions of the
Agent, such payments to be made to the Agent.
(b) All payments to be made by Maxtor to the Seller under or in
connection with any Purchase Document, shall be made by Maxtor
irrespective of, and without deduction for, any counterclaim, defense,
recoupment or set-off and shall be final, and Maxtor will not seek to
recover from the Agent or any Owner for any reason any such payment once
made.
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(c) To the extent the Secondary Purchasers receive any payments
relating to the Additional Assigned Rights to which the Secondary
Purchasers are not entitled, the Secondary Purchasers shall remit such
payments to the Seller or any other Person designated by the Seller.
(d) The Agent shall be entitled, except to the extent limited by
agreement among the Seller, the Owners and the Agent, to exercise any
and all rights and remedies of the Seller under any Purchase Document to
which it is a party, including without limitation rights of the Seller
to make requests, demands for payment and other demands, determinations
and designations, to amend, supplement or modify, to give consents or
waivers, and to deliver notices to Maxtor, and to receive notices,
requests, reports and other information to be delivered by Maxtor, from
time to time thereunder; and Maxtor shall in all respects comply with
and perform in respect of each such exercise. Neither the Agent nor any
Owner shall have any obligation or liability with respect to any of the
Seller's obligations under any Purchase Document.
SECTION 12.03. Further Agreements. In order to induce the Owners to
purchase interests from time to time in Subject Receivables, Maxtor hereby
acknowledges and agrees as follows:
(a) On the date hereof and as of the Closing Date, Maxtor hereby
reaffirms for the benefit of the Agent and the Owners the
representations and warranties made by Maxtor in Section 3.01 of the
Receivables Contribution and Sale Agreement, in Section 5 of the Maxtor
Agreement and in the Repurchase Agreement, respectively.
(b) Each of the Purchase Documents to which Maxtor is a party is
and on the Closing Date will be (i) the legal, valid and binding
obligation of each party thereto enforceable against Maxtor and each
other party thereto in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium or other laws affecting rights of
creditors generally and to general equitable principles, and (ii) in
full force and effect, and is not subject to any dispute, offset,
counterclaim or defense whatsoever.
(c) Maxtor will, at is expense, timely and fully perform and
comply in all material respects with, and cause each of the Seller and
any Selling Affiliates to timely and fully perform and comply in all
material respects with, all provisions, covenants and other promises
required to be observed by Maxtor, such Selling Affiliate or the Seller,
as applicable, under each Purchase Document to which it is a party,
maintain, and cause the Seller and any Selling Affiliate to maintain,
each Purchase Document to which it is a party in full force and effect,
enforce, and cause the Seller and any Selling Affiliate to enforce, each
Purchase Document to which it is a party in accordance with its
respective terms, take, and cause the Seller and any Selling Affiliate
to take, all such action to such end as may be from time to time
reasonably requested by the Agent, and make, and cause the Seller or any
Selling Affiliate to make, to any party to any Purchase Document to
which it is a party such demands and requests for information and
reports or for action as
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Maxtor or the Seller, respectively, are entitled to make thereunder and
as may be from time to time reasonably requested by the Agent.
(d) Maxtor will promptly and in any event within five Business
Days after its receipt or delivery thereof, deliver to the Agent copies
of all notices, requests, reports, certificates, and other documents and
information delivered or received by Maxtor from time to time under or
in connection with any Purchase Document.
(e) Maxtor will not (A) cancel or terminate any Purchase
Document to which it is a party or consent to or accept any cancellation
or termination thereof, (B) amend or otherwise modify any term or
condition of any Purchase Document to which it is a party or give any
consent, waiver or approval thereunder, (C) waive any default under or
breach of any Purchase Document to which it is a party or (D) take any
other action under any Purchase Document to which it is a party not
required by the terms thereof that would impair the value of any
Additional Assigned Rights or the Seller's rights or interests
thereunder or the rights or interests of the Agent or the Owners
hereunder or thereunder, or permit the Seller or any Selling Affiliate
to take any of the actions set forth in clauses (A) through (D) above
with respect to any Purchase Document to which it is a party.
SECTION 12.04. Seller Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Seller shall remain liable under each Purchase Document
to which it is a party to the extent set forth therein to perform all of its
duties and obligations thereunder to the same extent as if this Agreement had
not been executed, (b) the exercise by the Agent of any of the rights hereunder
shall not release the Seller from any of its duties or obligations under each
Purchase Document to which it is a party, and (c) neither the Agent nor the
Secondary Purchasers nor any other Indemnified Party shall have any obligation
or liability under any Purchase Document by reason of this Article XII, nor
shall the Agent or the Secondary Purchasers or any other Indemnified Party be
obligated to perform any of the obligations or duties of the Seller thereunder.
SECTION 12.05. Agent Appointed Attorney-in-Fact. The Seller hereby
irrevocably appoints the Agent the Seller's attorney-in-fact, with full
authority in the place and stead of the Seller and in the name of the Seller or
otherwise, from time to time in the Agent's discretion, to take any action and
to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of the assignment hereunder, including, without
limitation:
(a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in connection with the Additional Assigned Rights,
(b) to receive, indorse and collect any drafts or other
instruments, documents and chattel paper in connection therewith, and
(c) to file any claims or take any action or institute any
proceedings which the
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Agent may deem necessary or desirable for the collection of any of the
Additional Assigned Rights or otherwise to enforce compliance with the
terms and conditions of the Purchase Documents or the rights of the
Agent with respect to any of the Additional Assigned Rights.
SECTION 12.06. Agent May Perform. If the Seller fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Agent incurred in
connection therewith shall be payable by the Seller under Section 13.06(a).
SECTION 12.07. The Agent's Duties. The powers conferred on the Agent
hereunder are solely to protect its interest in the Additional Assigned Rights
and shall not impose any duty upon it to exercise any such powers. Except for
the safe custody of any Additional Assigned Rights in its possession and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Additional Assigned Rights or as to the taking of any necessary
steps to preserve rights against any parties or any other rights pertaining to
any Additional Assigned Rights. The Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any Additional Assigned
Rights in its possession if such Additional Assigned Rights are accorded
treatment substantially equal to that which it accords its own property.
SECTION 12.08. Remedies. If any Event of Termination shall have occurred
and be continuing:
(a) The Agent may exercise any and all rights and remedies of
the Seller under or in connection with each Purchase Document to which
the Seller is a party or otherwise in respect of the Additional Assigned
Rights, including, without limitation, any and all rights of the Seller
to demand or otherwise require performance of any provision of any
Purchase Document.
(b) The Agent may exercise in respect of the Additional Assigned
Rights, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of an owner of
such Additional Assigned Rights to the extent of the interest therein
assigned under this Agreement under applicable law in effect in the
State of New York.
(c) All payments received by the Seller in respect of the
Additional Assigned Rights shall be received in trust for the benefit of
the Agent, shall be segregated from other funds of the Seller and shall
be forthwith paid over to the Agent in the same form as so received
(with any necessary endorsement).
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ARTICLE XIII
MISCELLANEOUS
SECTION 13.01. Amendments, Integration, Etc. No amendment or waiver of
any provision of this Agreement, and no consent to any departure by the Seller
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, each Owner and the Purchaser, and then such amendment,
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. This Agreement contains a final and complete
integration of all prior expressions by the parties hereto with respect to the
subject matter hereof and shall constitute the entire agreement among the
parties hereto with respect to the subject matter hereof, superseding all prior
oral or written understandings.
SECTION 13.02. Notices, Etc. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including communication by telefax) and mailed, telefaxed or delivered, as to
each party hereto, at its address and telefax number set forth under its name on
the signature pages hereof or in the case of any Assignee, at its address set
forth in the notice delivered to the Agent pursuant to Section 9. 01 (a) or at
such other address or telefax number as shall be designated by such party in a
written notice to the other parties hereto. All such notices and communications
shall, when mailed or telefaxed, be effective when delivered by mail or when
telefaxed, respectively, except that notices and communications to the Agent,
the Trustee and the Owners pursuant Article II shall not be effective until
received by the Agent, the Trustee or the Owners, as the case may be.
SECTION 13.03. No Waiver; Remedies. No failure on the part of any Owner,
Indemnified Party, the Secondary Purchaser, the Agent, the Seller or the Trustee
to exercise, and no delay in exercising, any right under any Purchase Document
shall operate as a waiver thereof; nor, shall any single or partial exercise of
any right under any Purchase Document preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 13.04. Binding Effect; Assignability. This Agreement shall be
binding upon and inure to the benefit of the Seller, the Agent, the Purchaser,
the Secondary Purchasers, the Trustee, each Owner and each Indemnified Party and
their respective successors and assigns, except that the Seller shall not have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Agent. This Agreement shall create and constitute
the continuing obligation of the parties hereto in accordance with its terms,
and shall remain in full force and effect until the Collection Date; provided,
however, that rights and remedies with respect to the indemnification provisions
of this Agreement shall be continuing and shall survive any termination of this
Agreement.
SECTION 13.05. Governing Law. This Agreement and the Assignments shall
be governed by, and construed in accordance with, the laws of the State of
California, except (i) to the extent that the perfection or the effect of
non-perfection of the interests of the Owners, or remedies hereunder, in respect
of the Seller Assets in respect thereof are governed by the laws of
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a jurisdiction other than the State of California and (ii) for the rights,
duties, privileges, immunities and indemnities of the Trustee, which shall be
governed by the laws of the State of New York.
SECTION 13.06. Costs, Expenses and Taxes. (a) In addition to the rights
of indemnification granted to the Indemnified Parties under Article X hereof,
the Seller agrees to pay on demand all costs and expenses in connection with the
preparation, execution, delivery, periodic auditing (to the extent the costs and
expenses related thereto are required to be paid by the Seller pursuant to
Section 5. 01 (c)), modification and amendment of the Purchase Documents and the
other documents to be delivered hereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Agent, with
respect thereto and with respect to advising the Agent as to its rights and
remedies under the Purchase Documents and the other documents to be delivered
hereunder. The Seller further agrees to pay on demand all costs and expenses, if
any (including, without limitation, reasonable counsel fees and expenses), in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of the Purchase Documents and the other documents to be delivered
hereunder, including, without limitation, reasonable counsel fees and expenses
in connection with the enforcement of rights under this Section 13.06(a).
(b) In addition, the Seller shall pay when due any and all stamp and
other taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing, recording or searching in respect of, or
enforcement, of the Purchase Documents and the other documents to be delivered
hereunder, and agrees to save each Indemnified Party harmless from and against
any and all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and fees (including, without limitation, sales taxes,
shipping charges or other similar taxes and charges due on merchandise or
services sold by the Seller, Maxtor or any Selling Affiliate to Obligors),
provided that each Owner will pay (or reimburse the Seller for) all property,
excise or similar taxes and any other taxes imposed by reason of ownership of
Subject Receivables, but only to the extent of the percentage interest therein
represented by the Purchased Interests.
(c) The Seller also shall pay on demand all other costs, expenses and
taxes (excluding income taxes) incurred by each Owner or any general or limited
partner or shareholder of each such Owner ("Other Costs"), including, without
limitation, (i) any and all costs relating to all arrangements contemplated
hereby with any of the Lock Box Banks, (ii) the taxes (excluding income taxes)
resulting from each Owner's operations, or (iii) the reasonable fees and
disbursements of counsel for each Owner with respect to advising as to rights
and remedies under Purchase Documents or the agreements and documents entered
into in connection therewith, the enforcement of the Purchase Documents or the
agreements and documents entered into in connection therewith, or advising as to
matters relating to each Owner's operations.
SECTION 13.07. No Proceedings. Each of the parties hereto hereby agrees
that they will not institute against the Seller any proceeding of the type
referred to in Section 7.01(g).
80
<PAGE> 164
SECTION 13.08. Confidentiality. Except to the extent otherwise required
by applicable law, each of the parties hereto agrees to maintain the
confidentiality of the Purchase Documents (and all drafts thereof) and not to
disclose any Purchase Document or such drafts to third parties (other than to
its directors, officers, employees, accountants or counsel); provided, however,
that the Agreement may be disclosed to third parties to the extent such
disclosure is (i) required by any applicable securities laws, (ii) made solely
to persons who are legal counsel for the purchaser or underwriter of such
securities, (iii) limited in scope to the provisions of Articles V, VII, X and,
to the extent defined terms are used in Articles V, VII and X, such terms
defined in Article I of this Agreement and (iv) made pursuant to a written
agreement of confidentiality in form and substance reasonably satisfactory to
the Agent.
SECTION 13.09. Intent of Agreement. It is the intention of this
Agreement that each Purchase and deposit to the Seller's Account shall convey to
the Owner, to the extent of its Purchased Interest, an undivided ownership
interest in the Seller Assets and that such transaction shall constitute a
purchase and sale and not a secured loan for all purposes other than for federal
income tax purposes. If, notwithstanding such intention, the conveyance of the
Purchased Interest from the Seller to any Owner shall ever be recharacterized as
a secured loan and not a sale, it is the intention of this Agreement that this
Agreement shall constitute a security agreement under applicable law, and that
the Seller shall be deemed to have granted to the Agent, for the benefit of the
Beneficiaries, a duly perfected first priority security interest in all of the
Seller's right, title and interest in, to and under the Seller Assets, free and
clear of Adverse Claims.
SECTION 13.10. Execution in Counterparts; Severability. This Agreement
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement. In case any provision in or obligation under this Agreement or the
Assignments should be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
81
<PAGE> 165
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MAXTOR RECEIVABLES CORPORATION,
as Seller
By: /s/ Paul J. Tufano
-----------------------------------------
Title: President
510 Cottonwood Drive
Milpitas, CA 95035
Attention: Raja Venkatesh
Telefax No.: 408/432-4480
MAXTOR CORPORATION,
as Collection Agent
By: /s/ Paul J. Tufano
-----------------------------------------
Title: Vice President and
Chief Financial Officer
510 Cottonwood Drive
Milpitas, CA 95035
Attention: Chief Financial Officer
Telefax No.: (408) 432-4480
82
<PAGE> 166
CITICORP NORTH AMERICA, INC.,
as Agent
By: /s/
-----------------------------------------
Vice President
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: Corporate Asset Funding
Department
Telefax No.: (914) 899-7015
83
<PAGE> 167
BANKERS TRUST COMPANY,
as Trustee
By: /s/ Louis Bodi
-----------------------------------------
Title: Vice President
4 Albany Street
New York, New York 10006
Attention: Corporate Trust and
Agency Group
Telefax: (212) 250-6439
CITIBANK, N.A.,
as Secondary Purchaser
By: /s/
-----------------------------------------
Title:
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: Corporate Asset
Funding Department
Telefax: (914) 899-7015
84
<PAGE> 168
Exhibit E-1 as executed
April 8, 1998
Corporate Receivables Corporation
450 Mamaroneck Avenue
Harrison, New York 10528
Citicorp North America, Inc.,
as Agent
450 Mamaroneck Avenue
Harrison, New York 10528
Bankers Trust Company
as Trustee
Four Albany Street, 10th Floor
New York, New York 10006
Re: Maxtor Corporation; Perfection and Enforceability Issues
Ladies and Gentlemen:
We have acted as special counsel for Maxtor Corporation ("Maxtor") and
Maxtor Receivables Corporation ("MRC") in connection with the transactions
contemplated by (i) the Receivables Purchase and Sale Agreement, dated as of
April 8, 1998, among MRC, as Seller, Maxtor, as Collection Agent, Corporate
Receivables Corporation ("CRC"), as Purchaser, Citicorp North America, Inc.
("CNAI"), as Agent, and Bankers Trust Company, as Trustee (the "Purchase
Agreement") and (ii) the Bank Agreement (together with the Purchase Agreement,
the "Purchase and Bank Agreements"). This opinion is furnished to you pursuant
to Section 3.01(k) of each Purchase and Bank Agreement. Terms defined in the
Purchase Agreement are used herein as therein defined. The term "Receivable
Assets" shall have the meaning provided in the Maxtor Sales Agreement. The term
"security interest" shall have the meaning provided in Section 1201(36)(a) of
the California Uniform Commercial Code ("CUCC"), so as to include both an
interest in personal property that secures payment and performance of an
obligation and an interest of a buyer of "accounts" or "chattel paper" (as those
terms are defined in the CUCC).
We have examined originals or copies of the following documents, all
dated as of April 8, 1998, unless otherwise indicated (the "Documents"):
<PAGE> 169
Corporate Receivables Corporation
Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page Two
1. The Repurchase Agreement.
2. The Receivables Contribution and Sale Agreement among Maxtor, as
Seller, and MRC, as Buyer (the "Maxtor Sales Agreement" and together with the
Purchase and Bank Agreements, the "Agreements").
3. The Purchase Agreement.
4. The Bank Agreement.
5. The Assignment delivered on the date hereof.
6. The Maxtor Agreement.
7. The Fee Letter.
8. Stamped receipt copies of a financing statement, naming Maxtor as
Debtor, MRC as Secured Party, and CNAI (as Agent) as Assignee with respect to
Receivable Assets sold by Maxtor to MRC under the Maxtor Sales Agreement (the
"MRC Financing Statement").
9. Stamped receipt copies of a financing statement, naming MRC as Debtor
and CNAI, as Agent and as Secured Party with respect to Purchased Interests sold
by MRC to CRC under the Purchase Agreement (the "CRC Financing Statement" and
together with the MRC Financing Statement, the "Financing Statements").
10. Such other documents, agreements, and instruments as we have
considered necessary or relevant in order to provide this opinion.
In addition, we have examined such records, documents, certificates of
public officials and of Maxtor and MRC, made such inquiries of officials of
Maxtor and MRC, and considered such questions of law as we have deemed necessary
for the purpose of rendering the opinions set forth herein.
We have assumed (i) the genuineness of all signatures and the
authenticity of all items submitted to us as originals and the conformity with
originals of all items submitted to us as copies, (ii) that each party (other
than Maxtor and MRC) to one or more of the Documents has the power and authority
to execute and deliver, and to perform and observe the provisions of, the
Documents to which it is a party, and has duly authorized, executed and
delivered such Documents, and that such Documents constitute valid and binding
obligations of such party.
In rendering the opinions set forth below, insofar as they relate to the
power and authority of Maxtor and MRC to execute and deliver, and to perform and
observe the provisions of, the
<PAGE> 170
Corporate Receivables Corporation
Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page Three
Documents to which each is a party, and to their due authorization, execution
and delivery of such Documents, we have relied upon the opinion of Glenn H.
Stevens, General Counsel of Maxtor and MRC, dated of even date herewith. Insofar
as they relate to such matters, our opinions are subject to all of the
exceptions, limitations and qualifications set forth in that opinion.
For purposes of the opinions expressed in paragraphs (a) and (e) below,
we have assumed that California Civil Code Section 1646.5 would be applied in
accordance with its terms.
Our opinions in paragraphs (b)(i) and (f)(i) below are based solely on
knowledge we have gained from certificates of Glenn H. Stevens, Secretary of
Maxtor and MRC, copies of which are attached hereto. We have made no independent
investigations as to whether such certificates are accurate or complete, but we
have no knowledge of any such inaccuracy or incompleteness. As to agreements
described in such certificates that by their terms are or may be governed by the
laws of a jurisdiction other than California, we assume that such agreements are
governed by the law of California for purposes of the opinion expressed in such
paragraphs (b) and (f) below. In addition, we exclude from the scope of such
opinions any potential violation of financial covenants contained in such
agreements. The knowledge referred to above is actual knowledge obtained in the
course of representation of Maxtor and MRC in connection with the matter
described in the first paragraph hereof. No inference as to our knowledge should
be drawn from the fact of our representation of Maxtor or MRC. In addition, in
rendering the opinion in paragraphs (d) and (h) below, we have relied on the
representation and warranty of MRC and Maxtor set forth in Section 4.01(j) of
each Purchase and Bank Agreement and Section 3.01(j) of the Maxtor Sales
Agreement, respectively.
We express no opinion as to (i) the enforceability of a security
interest in any property excluded from the CUCC by Section 9104 thereof, (ii)
the perfection of any security interest created by the Documents, except as set
forth in paragraphs (d) and (h) below, (iii) the priority of any such security
interest, (iv) the effect of the absence of such perfection or priority, (v) the
state of title to the personal property (the "Personal Property") described in
the Agreements or the Financing Statements, (vi) the accuracy of the description
of the Personal Property contained in the Agreements or the Financing
Statements, (vii) the legal sufficiency of the description of the Personal
Property contained in the Agreements or the Financing Statements, (viii) whether
a transfer of any such Personal Property under or pursuant to any Agreement or
Assignment constitutes a sale of such Personal Property for purposes of the
CUCC, (ix) the perfection of a security interest in property of the type
specified in CUCC Section 9401(1)(a) or (b), or (x) the enforceability or
perfection of a security interest in Receivable Assets if the Obligor under the
related Contract is a government or any political subdivision or agency thereof.
We have also assumed that (i) the granting of a security interest in
Personal Property consisting of rights under a contract is not restricted by the
terms of such contract or by law,
<PAGE> 171
Corporate Receivables Corporation
Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page Four
(ii) at all times material to our opinions Maxtor and MRC have "rights" in the
Personal Property within the meaning of Section 9203(l)(c) of the CUCC, and
(iii) the California usury laws are not applicable to Citibank, CNAI, any other
Purchaser, Owner or the Agent.
With respect to our opinions in paragraphs (a) and (e) below, we note
that if Purchased Interests are simultaneously outstanding under both the
Purchase Agreement and the Bank Agreement, then arrangements coordinating the
operation of such agreements will need to be agreed.
The opinion hereinafter expressed is subject to the following further
qualifications:
(1) The effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws relating to or affecting the rights of
creditors generally, including, without limitation, laws relating to fraudulent
transfers or conveyances, preferences and equitable subordination.
(2) Limitations imposed by general principles of equity upon the
availability of equitable remedies or the enforcement of provisions of the
Documents; and the effect of judicial decisions which have held that certain
provisions are unenforceable where their enforcement would violate the implied
covenant of good faith and fair dealing, or would be commercially unreasonable,
or where a default under the Documents is not material.
(3) We express no opinion as to the effect on the opinions expressed
herein of (i) the compliance or non-compliance of any party to the Documents
(other than Maxtor and MRC) with any laws or regulations applicable to it, or
(ii) the legal or regulatory status or the nature of the business of any such
party.
(4) Limitations imposed by Part 5 of Division 9 of the CUCC upon the
rights, powers and remedies of MRC under the Maxtor Sales Agreement and of CNAI,
as Agent, and the Owners under each Purchase and Bank Agreement.
(5) The effect of judicial decisions permitting the introduction of
extrinsic evidence to modify the terms or the interpretation of the Documents.
(6) The enforceability of Receivable Assets or a Purchased Interest may
be subject to the terms of the related Contract or another agreement and claims
and defenses of parties thereto against Maxtor or MRC.
(7) Insofar as our opinions relative to Receivable Assets or a Purchased
Interest encompass "proceeds" as defined in CUCC Section 9306, such opinions are
limited to the extent set forth in that section.
<PAGE> 172
Corporate Receivables Corporation
Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page Five
(8) The enforceability of provisions of the Documents providing for
indemnification to the extent such indemnification is against public policy.
(9) The enforceability of provisions of the Documents which purport to
transfer governmental pen-nits, licenses or other authorizations, or claims
against governmental entities, the transfer of which is restricted by law.
(10) The effect of California law which provides that where a contract
permits one party to the contract to recover attorney's fees, the prevailing
party in any action to enforce any provision of the contract shall be entitled
to recover its reasonable attorney's fees notwithstanding the absence of a
written agreement to such effect.
(11) The enforceability of a requirement that provisions of the
Documents may only be modified in writing to the extent that an oral agreement
has been executed modifying provisions of the Documents.
(12) The enforceability of provisions of the Documents imposing or which
are construed as effectively imposing penalties or forfeitures.
Based upon and subject to the foregoing, we are of the opinion that:
(a) Each Agreement, the Assignment delivered on the date hereof and the
Fee Letter (collectively, the "MRC Agreements") constitute valid and binding
obligations of MRC enforceable against MRC in accordance with their respective
terms. The Assignment delivered on the date hereof and the Purchase Agreement
constitutes a valid and binding assignment of MRC's rights to an undivided
percentage interest in the Subject Receivables to the extent of the Purchased
Interest evidenced by such Assignment, enforceable against MRC in accordance
with its terms.
(b) The execution, delivery and performance by MRC of the MRC Agreements
(i) to our knowledge, do not result in or require the creation of any Adverse
Claim (other than pursuant to the Agreements) upon or with respect to the
Purchased Interest purchased pursuant to the Purchase Agreement; and (ii) do not
require compliance with the California bulk sales law.
(c) Each Purchased Interest purchased pursuant to the Purchase Agreement
will constitute a valid undivided security interest ("Undivided Interest") in
MRC's rights in the related Subject Receivables.
(d) The CRC Financing Statement is in appropriate form and has been duly
filed pursuant to the CUCC in the office of the California Secretary of State.
The filing of the CRC Financing Statement with the California Secretary of State
and the execution and delivery of an Assignment and the Purchase Agreement
operate to perfect the Undivided Interest of CNAI, as
<PAGE> 173
Corporate Receivables Corporation
Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page Six
Agent, for the benefit of the Purchaser and each other Owner in the Purchased
Interest described in such Assignment to the extent that such security interest
can be perfected by the filing of a financing statement in the State of
California. As of March 30, 1998, there were no financing statements naming MRC
as debtor or seller and covering the Subject Receivables. The conclusions
expressed in this paragraph (d) pertaining to absence of filings are subject to
the accuracy of the personnel in the filing offices referred to above with
regard to the filing, indexing and recording of financing statements, and to the
correctness of uncertified UCC search reports provided to us by Shearman &
Sterling and obtained through Access Information Services, Inc., a private
search company, which performed the searches of such records. In expressing our
conclusions herein with respect to the filing of the CRC Financing Statement, we
have also relied, without independent investigation, upon notice of such filings
received from the office of the Secretary of State of California.
(e) Each Agreement, the Repurchase Agreement and the Maxtor Agreement
(collectively, the "Maxtor Agreements") constitute valid and binding obligations
of Maxtor enforceable against Maxtor in accordance with their respective terms.
(f) The execution, delivery and performance by Maxtor of the Maxtor
Agreements (i) to our knowledge do not result in or require the creation of any
Adverse Claim (other than pursuant to the Agreements) upon or with respect to
the Receivable Assets; and (ii) do not require compliance with the California
bulk sales law.
(g) The Maxtor Sales Agreement conveys a valid security interest in
Maxtor's rights in the Receivables transferred pursuant thereto.
(h) The MRC Financing Statement is in appropriate form and has been duly
filed pursuant to the CUCC in the office of the California Secretary of State.
The filing of the MRC Financing Statement with the California Secretary of State
and the execution and delivery of the Maxtor Sales Agreement operate to perfect
the security interest of MRC in the Receivables transferred pursuant to the
Maxtor Sales Agreement to the extent that such security interest can be
perfected by the filing of a financing statement in the State of California. As
of March 30, 1998, there were no financing statements naming Maxtor as debtor or
seller and covering the Receivables other than (x) a financing statement naming
CNAI, as Agent, as secured party under the Original Agreement, which has been
terminated and (y) with respect to Receivables arising from the sale or lease of
goods identified in the financing statements listed on Schedule I hereto (the
"Existing Financing Statements"). The conclusions expressed in this paragraph
(h) pertaining to absence of filings except as noted above are subject to the
accuracy of the personnel in the filing office referred to above with regard to
the filing, indexing and recording of financing statements, and to the
correctness of uncertified UCC search reports provided to us by Shearman &
Sterling and obtained through Access Information Services, Inc., a private
search company, which performed the searches of such records. In expressing our
conclusions herein
<PAGE> 174
Corporate Receivables Corporation
Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page Seven
with respect to the filing of the MRC Financing Statement, the absence of
filings except as noted above, and termination of the Existing Financing
Statements, we have also relied, without independent investigation, upon notice
of the filings and termination referenced above received from the office of the
Secretary of the State of California.
Continuation statements complying with the CUCC must be filed with the
office of the Secretary of State of California not more than six months prior to
the expiration of the five-year period dating from the date of filing of the
Financing Statements, and not more than six months prior to the expiration of
each subsequent five-year period after the original filings, in order to
continue the perfection of such security interest. We also advise you that
additional action may be necessary to continue such perfection (i) if either MRC
or Maxtor changes its name, identity or structure, or there is a change in the
jurisdiction in which its place of business (or, if it has more than one place
of business, its chief executive office) is located, or (ii) with respect to
Personal Property constituting "proceeds" under Section 9306 of the CUCC.
We express no opinion as to matters governed by any laws other than the
laws of the State of California and federal laws of the United States, which are
in effect on the date hereof. We express no opinion as to the enforceability of
the New York choice of law provisions contained in the Documents or the internal
laws of the State of New York.
This opinion has been furnished to you solely in connection with the
transactions described herein and on the condition that the opinions expressed
herein may not be published or otherwise communicated by you or any of your
agents to any other Person (other than accountants for Maxtor and MRC for the
sole purpose of preparing financial statements for Maxtor and MRC) without our
specific prior written approval in each instance except to your successors,
assigns, transferees or prospective transferees and as provided below. By
relying on this opinion, each successor, assign and transferee and the Trustee
shall be deemed to have concurred in your permission for us to make the
assumptions we have made herein. No one other than you, your successors, assigns
and transferees and the Trustee, in connection with the transactions described
herein, may rely upon the opinion expressed herein.
Very truly yours
/s/ Morrison & Foerster LLP
Attachments
<PAGE> 175
Exhibit E-2 as executed
April 8, 1998
Citibank, N.A.
450 Mamaroneck Avenue
Harrison, New York 10528
Citicorp North America, Inc.,
individually and as Agent
450 Mamaroneck Avenue
Harrison, New York 10528
Bankers Trust Company
as Trustee
Four Albany Street, 10th Floor
New York, New York 10006
Re: Maxtor Corporation; True Sale Analysis
Ladies and Gentlemen:
We have acted as special counsel for Maxtor Corporation ("Maxtor") and
Maxtor Receivables Corporation ("MRC") in connection with the transactions
contemplated by (i) the Receivables Purchase and Sale Agreement, dated as of
April 8, 1998 (the "Purchase Agreement"), among MRC, as Seller, Maxtor, as
Collection Agent, Corporate Receivables Corporation ("CRC"), Citicorp North
America, Inc. ("CNAI"), individually and as Agent, and Bankers Trust Company, as
Trustee, (ii) the Bank Agreement (together with the Purchase Agreement, the
"Purchase and Bank Agreements"), and (iii) the Receivables Contribution and
Sales Agreement, dated as of April 8, 1998, between Maxtor, as Seller, and MRC,
as Buyer (the "Maxtor Sales Agreement," and, together with the Purchase and Bank
Agreements, the "Agreements"). This opinion is furnished to you pursuant to
Section 3.01(l)(A) of each Purchase and Bank Agreement. Terms defined in the
Maxtor Sales Agreement are used herein as therein defined.
You have requested our opinion as to whether, if either Maxtor or MRC
were to become a debtor in a case under the Title 11 of the United States Code
(the "Bankruptcy Code"), a federal bankruptcy court, exercising reasonable
judgment after consideration of all relevant factors, would hold that the
transfer of the Receivables from Maxtor to MRC pursuant to the
<PAGE> 176
Citibank, N.A.
Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page Two
Maxtor Sales Agreement is not a "true sale" and accordingly that the Receivables
and Collections thereon are not property of the estate of MRC for purposes of
Bankruptcy Code Section 541.
Documents Examined
We have examined originals or copies of the following documents, all
dated as of April 8, 1998, unless otherwise indicated (the "Documents"):
(i) The Agreements.
(ii) The Maxtor Agreement.
We have assumed (i) the genuineness of all signatures and the
authenticity of all items submitted to us as originals and the conformity with
originals of all items submitted to us as copies, (ii) that each party to one or
more of the Documents has the power and authority to execute and deliver, and to
perform and observe the provisions of, the Documents to which it is a party, and
has duly authorized, executed and delivered such Documents, and that such
Documents constitute valid and binding obligations of such party.
Facts and Assumptions
In rendering our opinions, we have relied upon facts set forth or
provided for in the Documents, including the Officers Certificates, in which the
facts and assumptions set forth herein are represented to be accurate, and upon
representations and warranties of Maxtor and MRC as to matters of fact set forth
in the Documents to which they are a party. We have not made independent inquiry
with regard to the accuracy of the matters stated in the Officers Certificates
or the Documents. In rendering our opinions, we have assumed that the facts and
assumptions outlined below are now and will at all relevant times remain
correct.
We have been advised of the following facts by Maxtor:
Pursuant to the Maxtor Sales Agreement, MRC will acquire from Maxtor all
of Maxtor's right, title and interest in, to and under all Receivables. The
parties intend and the applicable Documents provide that the transfer of an
undivided 5% interest in the Receivables existing on the Closing Date will be
transferred as a contribution of capital by Maxtor to MRC, and that the
remaining 95% undivided interest in such Receivables existing on the Closing
Date, as well as a 100% interest in all Receivables created after the Closing
Date, will be sold by Maxtor to MRC for their fair market value. Except to the
extent of such capital contribution on the Closing Date, Maxtor will treat its
transfer of such Receivables to MRC as, and the records of Maxtor will reflect
such transfer as, a sale of such Receivables for accounting and other purposes
(other than federal income tax purposes), in accordance with the preceding
sentence.
<PAGE> 177
Citibank, N.A.
Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page Three
The Purchase Price payable by MRC for the Receivables reflects the good
faith arm's-length determination by MRC and Maxtor of the fair market value of
the Receivables, reflecting a reasonable estimate of default rates and
collection experience based on Maxtor's prior experience with comparable
receivables. Maxtor will receive the entire consideration for each Receivable on
the date of sale thereof, and there are no provisions for retroactive adjustment
of the consideration for any Receivable after the date of sale.
Maxtor will irrevocably transfer and relinquish its ownership rights
with respect to the Receivables, and will have no rights to sell, pledge or
otherwise dispose of any of the Receivables. Except under the limited
circumstances provided in the Maxtor Sales Agreement with respect to Maxtor's
obligation to repurchase certain Receivables in the event of reductions,
cancellations, or set off in relation to defective, rejected or returned
merchandise or in respect of a violation of representations or warranties in
Section 3.01(h) of the Maxtor Sales Agreement made by Maxtor with respect to
such Receivables, Maxtor will not have any obligation to repurchase Receivables,
or to deliver other receivables or any other assets either in substitution for
or in addition to the Receivables in the event of a credit loss or decline in
value of the Receivables. Maxtor's obligation to repurchase Receivables is
limited and does not result from a decline in the value of or payment defaults
on the Receivables and does not, except in the limited circumstances described
above, give Maxtor a right to repurchase or otherwise reacquire any of the
Receivables or to reclaim any of the benefits of ownership. We understand that
Maxtor's repurchase obligations under the Maxtor Sales Agreement are similar to
the obligations of other sellers in comparable sales transactions.
Maxtor will continue to act as Collection Agent with respect to the
Receivables pursuant to Section 5.01 of the Maxtor Sales Agreement and in such
capacity will administer the collection of payments due under the Receivables,
determine whether to extend the term of or modify Receivables and administer the
repossession and liquidation of Receivable Assets. Maxtor will receive
compensation for performing such functions in an amount comparable to that
payable to third-party servicers of comparable receivable assets, which
compensation will be payable from Collections and will be prior to all other
applications of Collections in respect of the Receivables (other than fees of
the Trustee).
Discussion
Section 541 of the Bankruptcy Code provides that property of the estate
of a bankrupt entity includes "all legal or equitable interests of the debtor in
property as of the commencement of the case." A trustee in bankruptcy of Maxtor
might assert that the sale of Receivables from Maxtor to MRC was not a sale but
instead the grant of a security interest in the Receivables to MRC to secure a
borrowing by Maxtor from MRC. Such trustee in bankruptcy might therefore seek a
court order to turn over the Receivables or Collections thereon to Maxtor, as
provided in Section 542 of the Bankruptcy Code, or an order enforcing Section
362(a) of the Bankruptcy
<PAGE> 178
Citibank, N.A.
Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page Four
Code, the automatic stay provision, to prevent the making of payments on the
Receivables to the Trust.
Few courts have had occasion to distinguish between a sale and a secured
loan. The limited case law that exists indicates that in determining whether to
treat a transfer of property as a sale or a secured loan, a case-by-case
approach, based upon the facts of specific transactions, is employed. See Bear
v. Coben (In re Golden Plan of Cal., Inc.), 829 F.2d 705, 709 (9th Cir. 1986)
("Whether the parties intended outright sales or loans for security is
determined from all the facts and circumstances surrounding the transactions at
issue."). As a result, a particular ruling based on one set of facts is of
limited value in determining how a court might decide in a different factual
setting. In considering our opinion expressed below, you should understand that,
to our knowledge, there is no judicial precedent directly on point. However,
courts have relied upon, and accorded differing degrees of significance to, a
variety of factors, including the following factors.
A. Intention of and Treatment by the Parties
Most courts attempt to ascertain the true intentions of the parties,
evidenced not only by the actual words used in the applicable agreements, but
also by the treatment accorded by the parties themselves to a transfer of
receivable assets. See, e.g., Mapco, Inc. v. United States, 556 F.2d 1107,
1111-12 (Ct. Cl. 1977) (buyer's failure to report receivables purchased as
income earned deemed evidence that the transaction was a loan). We understand
that Maxtor will treat the sale of the Receivables to MRC as a sale for all
purposes (other than federal income tax purposes) and that Maxtor's records will
reflect the transaction as a sale. We further understand that the sale of
Receivables will be disclosed as such to third parties if necessary.
B. Risk of Loss
Allocation of credit risk (i.e., the risk of loss resulting from default
by obligors) as between transferor and transferee is generally considered by
courts to be the most significant factor in distinguishing between a sale and a
secured loan. Where the transferor retains that risk, courts are likely to
conclude that a given transaction is, in substance, a loan secured by the
property transferred and not a "true" sale. The risk can be retained through
various means, including full recourse to the seller in the event of nonpayment
of the receivables by account debtors, a "guaranty" of collectibility by the
seller, representations as to such collectibility or the solvency of account
debtors, a holdback of reserves from the purchase price, or a letter of credit,
guaranty, insurance or other source of payment to the seller on defaulted loans
established in connection with the transaction. See Major's Furniture Mart, Inc.
v. Castle Credit Corp., 602 F.2d 538, 545 (3d Cir. 1979) (Seller retained full
risk of uncollectibility where accounts were sold with full recourse to the
seller). The presence of limited recourse, however, may be viewed as consistent
with a sale. See Major's, 602 F.2d at 545; UCC Section 9-502 Official Comment 4
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Bankers Trust Company
April 8, 1998
Page Five
("there may be a true sale of accounts . . . although recourse exists"). If
there is a significant shifting of risk, sale characterization is possible
notwithstanding the existence of recourse.
The sale of the Receivables to MRC is to be made without recourse
(except as specifically provided in the Documents and discussed below) in the
event of Obligor defaults. No representation regarding yield, return or
collection with respect to any Receivable is made and Maxtor has no obligation
to deliver other receivables or any other assets either in substitution for or
in addition to the Receivables in the event of credit loss or decline in value
of any Receivable.
Although Maxtor will be obligated to repurchase Receivables in the event
of a breach of customary representations regarding the characteristics of the
Receivables, such arrangements are common in and not inconsistent with "true"
asset sale transactions. In addition, except for the repurchase of certain
Receivables for breaches of such representations, Maxtor will have no obligation
to repurchase Receivables, or to deliver other receivables or any other assets
either in substitution for or in addition to the Receivables in the event of a
credit loss or decline in value of the Receivables. Maxtor's representations as
to the Receivables under the Maxtor Sales Agreement do not relate to credit risk
or Obligor default, but instead relate to matters within Maxtor's control and
susceptible to prevention or cure.
We know of no other device established in connection with the
transaction that has the effect of allocating the risk of credit loss to Maxtor.
While Maxtor does provide a guaranty to the Agent on behalf of the Beneficiaries
with respect to the indemnity obligations of MRC under Article X of each
Purchase and Bank Agreement, those indemnity obligations do not provide
protection in respect of financial loss resulting from nonpayment of Receivables
by Obligors.
C. Economic Benefits
The extent to which the "seller" retains, and the "buyer" fails to
receive, the economic benefits of ownership of the property transferred may be
significant. If the transferor is entitled to surplus from collections above a
fixed amount or has an unlimited right to repurchase transferred receivables, a
financing rather than a sale may be suggested. See In re Joseph Kanner Hat Co.,
482 F.2d 937 (2d Cir. 1973); Mapco, Inc., 556 F.2d at 1111; Fox v. Peck Iron &
Metal Co., Inc., 25 Bankr. 674, 690 (Bankr. S.D. Cal. 1982) (option to
repurchase provided seller with the "ability to deprive . . . [buyer] of any
increase in value").
Maxtor will transfer all of its right, title and interest in and to the
Receivables to MRC, which will receive all of the economic benefits of ownership
of the transferred Receivables. Maxtor will not have any right to any surplus
from Collections on the Receivables
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Bankers Trust Company
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above the consideration received for such Receivables, will have no right to
reacquire Receivables sold, and will have no right to reclaim any benefits of
ownership.
D. Transferor's Continued Control
Continued collection or control of receivables or payments with respect
thereto by the transferor following a purported sale is not indicative of the
transfer of control usually associated with a financing sales transaction. See,
e.g., Mapco, Inc., 556 F.2d at 1111 (buyer "had no dominion or control over
revenue payments"); Commercial Security Co. v. Holcombe, 262 F. 657, 661 (5th
Cir. 1920) (collections and payment of collection expenses by the seller). This
is particularly problematic where the seller is entitled to commingle
collections from receivables "sold" with its own assets. See e.g., Ables v.
Major Funding Corp., 82 B.R. 443 (Bankr. S.D. Tex. 1987).
In analyzing whether a transfer of the ownership of loans has occurred,
courts have also considered the involvement of loan participants in the
servicing and management decisions. In re Alda Commercial Corporation, 327
F.Supp. 1315 (S.D.N.Y. 1971). The Alda court held that the loans remained part
of the bankrupt's estate because, among other factors cited, the participants
"did not manage the accounts or have any say as to how the bankrupt would attain
security or arrange for collections."(1) Id. at 1317.
In the present transaction, Maxtor will continue to service the
Receivables pursuant to Section 5.01 of the Maxtor Sales Agreement as Collection
Agent for the benefit of MRC. However, this should not be regarded as a factor
suggesting a financing transaction in the circumstances presented, where (i)
Section 5.01 of the Maxtor Sales Agreement, by cross-reference to Article VI of
each Purchase and Bank Agreement, contains detailed provisions with respect to
the servicing procedures that must be observed by the Collection Agent
including, among other things, limitations upon the right of the Collection
Agent to extend the term of
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(1) The courts adjudicating the claims arising out of the liquidation of Penn
Square Bank also analyzed the involvement of the participants in servicing
decisions. Seattle-First National Bank v. FDIC, 619 F.Supp. 1351 (W.D. Okla.
1985); Northern Trust Co. v. FDIC, 619 F.Supp. 1340 (W.D. Okla. 1985); Hibernia
National Bank v. FDIC, 733 F.2d 403 (10th Cir. 1984) and Chase Manhattan Bank v.
FDIC, 554 F.Supp. 251 (W.D. Okla. 1983). The issues in the cases involved
borrowers' rights to set off amounts owed to them by Penn Square Bank against
loans made to them by Penn Square Bank in which Penn Square Bank had sold
participation interests. In the context of determining the borrower's set off
rights, which if permitted would have decreased or eliminated the unpaid
principal balance from the loans in which the participants contended they owned
interests, the courts considered it significant that Penn Square Bank remained
the manager, sole secured party and sole authority for collecting on the loans
and concluded that the setoffs were proper. Even though these cases are
inapposite, a court could analyze the degree of control over the administration
and servicing of the Receivables as a characteristic of ownership in a manner
similar to the analysis in the Penn Square Bank liquidation cases.
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Bankers Trust Company
April 8, 1998
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Receivables or otherwise modify the Receivables, (ii) Article II of the Maxtor
Sales Agreement provides for all Collections to be deposited in the Lock-Box
Accounts and segregated from all other Maxtor funds, (iii) we understand that
Maxtor will receive compensation for performing such functions in an amount
comparable to that payable to third-party servicers of comparable receivable
assets, and (iv) Maxtor can be replaced as Collection Agent by the Agent.
E. Adequacy of Consideration
A transfer in which fair and reasonably equivalent value is received is
more likely to be viewed as a sale than one in which the transferor does not
receive such value. See, e.g., Fox v. Peck Iron & Metal Co., Inc., 25 Bankr.
674, 689 (Bankr. S.D. Cal. 1982) (receivables transferred by debtor worth at
least twice what the debtor received for them, suggesting "a disguised financing
scheme"). We understand that Maxtor is receiving consideration for the
Receivables sold pursuant to the Maxtor Sales Agreement that is fair and
reasonably equivalent in value to the value of the Receivables determined on an
arm's-length basis between non-affiliated parties, that the entire purchase
price for each Receivable will be received by Maxtor (either in the form of cash
or a promissory note) on the date of its sale, with no retroactive adjustment of
that price thereafter to reflect actual collections.
F. Notification of Obligors
The failure to notify the underlying obligors on receivables of a
transfer of such receivables to a transferee has been deemed indicative of a
secured loan rather than a true sale of receivable assets. Commercial Security
Co. v. Holcombe, 262 F. at 661; People v. Service Institute, Inc. 421 N.Y.S.2d
325 (Sup. Ct. 1979). In this case, while the Obligors under the Receivables may,
but are not required to be notified of the sale of the Receivables, they are
required to be instructed to make payments on the Receivables to a Lock Box
Account maintained in the name of the Agent.
G. Documentation of the Transaction
In recharacterizing a purported sale as a loan, consideration may be
given to whether a transaction utilizes loan terminology, and whether provisions
commonly found in loan but not sale contracts are contained in the transaction
documentation. See, e.g., In re Evergreen Valley Resort, Inc., 23 Bankr. 659
(Bankr. D. Me. 1982). The Maxtor Sales Agreement is in the form of, and contains
provisions typically found in, a sale and purchase agreement, and does not, for
instance, contain financial covenants or terminology of the type usually found
in loan agreements.
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April 8, 1998
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Conclusion
Based on the foregoing and subject to the further qualifications and
limitations hereinafter set forth, it is our opinion that, under present
reported decisional authority and statutes applicable to federal bankruptcy
cases, if Maxtor were to become a debtor in a case under the Bankruptcy Code, a
federal bankruptcy court, exercising reasonable judgment after full
consideration of all relevant facts, would hold that the Receivables and
Collections thereon transferred by Maxtor to MRC are not the property of the
estate of Maxtor under Bankruptcy Code Section 541 and, therefore are not
subject to the stay provisions of Bankruptcy Code Section 362.
We are not aware of any judicial authority on these issues decided on
facts similar to those involved in the transactions contemplated by or in
connection with the Documents. Accordingly, while our opinions reflect the
result that we believe would be reached on the basis of the transactions
contemplated by and in connection with the Documents, certainty as to such
result is not possible.
We express no opinion as to the availability or effect of a preliminary
injunction, temporary restraining order or such other temporary relief affording
delay pending a determination on the merits in the event that substantive
consolidation is sought.
This opinion has been furnished to you solely in connection with the
transactions described herein and on the condition that the opinions expressed
herein may not be published or otherwise communicated by you or any of your
agents to any other Person (other than accountants for Maxtor and MRC for the
sole purpose of preparing financial statements for Maxtor and MRC) without our
specific prior written approval in each instance except to your successors,
assigns, transferees or prospective transferees and as provided below. We
understand that you may furnish a copy of this opinion to Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Duff & Phelps Credit
Rating Co., Moody's Investors Services, Inc. and Fitch Investors Service, which
shall be entitled to rely hereon for the sole purpose of issuing or confirming
its rating of a securitization which includes the Receivables. By relying on
this opinion, each successor, assign and transferee and the Trustee shall be
deemed to have concurred in your permission for us to make the assumptions we
have made herein. No one other than you, your successors, assigns and
transferees and the Trustee, in connection with the transactions described
herein, may rely upon the opinion expressed herein.
This opinion should be interpreted in accordance with the Special Report
by the TriBar Opinion Committee, Opinions in the Bankruptcy Context: Rating
Agency, Structured Financing, and Chapter 11 Transactions, 46 Bus. Law. 717
(1991).
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE> 183
Exhibit E-2 as executed
April 8, 1998
Citibank, N.A.
450 Mamaroneck Avenue
Harrison, New York 10528
Citicorp North America, Inc.,
individually and as Agent
450 Mamaroneck Avenue
Harrison, New York 10528
Bankers Trust Company
as Trustee
Four Albany Street, 10th Floor
New York, New York 10006
Re: Maxtor Corporation; Consolidation Issues
Ladies and Gentlemen:
We have acted as special counsel for Maxtor Corporation ("Maxtor") and
Maxtor Receivables Corporation ("MRC") in connection with the transactions
contemplated by (i) the Receivables Purchase and Sale Agreement, dated as of
April 8, 1998 (the "Purchase Agreement"), among MRC, as Seller, Maxtor, as
Collection Agent, Corporate Receivables Corporation ("CRC"), Citicorp North
America, Inc. ("CNAI"), as Agent, and Bankers Trust Company, as Trustee, (ii)
the Bank Agreement, and (iii) the Receivables Contribution and Sale Agreement,
dated as of April 8, 1998, between Maxtor, as Seller, and MRC, as Buyer (the
"Maxtor Sales Agreement"). The Purchase Agreement and the Bank Agreement are
herein referred to as the "Purchase and Bank Agreements" and, together with the
Maxtor Sales Agreement, as the "Agreements." This opinion is furnished to you
pursuant to Section 3.01(1)(B) of each Purchase and Bank Agreement. Terms
defined in the Purchase Agreement are used herein as therein defined.
You have requested our opinion as to whether, in connection with any
bankruptcy proceedings instituted by, on behalf of, or against Maxtor under
Title 11 of the United States Code (the "Bankruptcy Code"), a United States
bankruptcy court or other court exercising jurisdiction over such case would
order the substantive consolidation of MRC with Maxtor, thereby pooling the
assets and liabilities of MRC with those of Maxtor.
<PAGE> 184
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Bankers Trust Company
April 8, 1998
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Documents Examined
We have examined originals or copies of the following documents, all
dated as of April 8, 1998, unless otherwise indicated (the "Documents"):
(i) The Agreements.
(ii) The Maxtor Agreement.
Facts and Assumptions
We have assumed (i) the genuineness of all signatures and the
authenticity of all items submitted to us as originals and the conformity with
originals of all items submitted to us as copies, (ii) that each party (other
than Maxtor and MRC) to one or more of the Documents has the power and authority
to execute and deliver, and to perform and observe the provisions of, the
Documents to which it is a party, and has duly authorized, executed and
delivered such Documents, and that such Documents constitute valid and binding
obligations of such party. In addition, we have relied on the opinion of Glenn
H. Stevens, General Counsel of Maxtor, of even date herewith with respect to
such power and authority of, and such due authorization, execution and delivery
by, Maxtor and MRC, and our opinions are subject to all of the exceptions,
limitations and qualifications set forth in that opinion.
We have also been advised of the following facts by Maxtor and MRC:
1. The Purchase and Bank Agreements and MRC's Articles of Incorporation,
by their terms, limit MRC's activities to purchasing Receivable Assets (as
defined in the Maxtor Sales Agreement) from Maxtor and the Selling Affiliates,
and selling interests in such Receivable Assets pursuant to and in accordance
with the Purchase Documents.
2. The Purchase and Bank Agreements, MRC's Articles of Incorporation
and/or MRC's Bylaws, by their terms, limit MRC's activities or otherwise require
that MRC:
a. will conduct all transactions and dealings between MRC
and Affiliates on an arm's-length basis;
b. has not made and will not make any loans or advances to
any third party (other than intercompany loans between
Maxtor (or any Selling Affiliates) and MRC) and has not
and will not hold itself out to be responsible for the
debts or obligations of any other Person;
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Bankers Trust Company
April 8, 1998
Page Three
c. will not fail to do all things necessary to preserve its
existence as a special purpose vehicle, and will not,
nor will any shareholder thereof, amend, modify or
otherwise change its articles of incorporation or bylaws
in a manner which adversely affects MRC's existence as a
special purpose vehicle;
d. will not enter into any transaction of merger or
consolidation, or liquidate or dissolve itself (or
suffer any liquidation or dissolution), or acquire by
purchase or otherwise all or substantially all of the
business or assets of, or any stock or other evidence of
beneficial ownership of, any Person;
e. is and will be, and at all times enter into its
contracts and otherwise hold itself out to the public
under MRC's own name as a legal entity separate and
distinct from any Affiliate;
f. will maintain proper corporate records and books of
separate account from those of Affiliates;
g. will maintain its assets, funds and transactions
separate from and not commingled with those of any
Affiliate, reflecting such assets and transactions in
financial statements separate and distinct from those of
such Affiliates, and evidencing such assets, funds and
transactions by appropriate entries in the books and
records referred to above, and providing for its own
operating expenses and liabilities from its own assets
and funds other than certain expenses and liabilities
relating to basic corporate overhead which may be
allocated between MRC and its Affiliates;
h. shall hold appropriate meetings or obtain such
appropriate consents of its Board of Directors as are
necessary to authorize all MRC's corporate actions
required by law to be authorized by the Board of
Directors, keeping minutes of such meetings and of
meetings of its stockholders and observing all other
customary corporate formalities;
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Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page Four
i. shall cause its Board of Directors to include at least
one individual who is an Independent Director;(1) and
j. will establish and maintain an office through which its
business shall be conducted separate and apart from
those of Maxtor and any Affiliate and will allocate
fairly and reasonably any overhead for shared office
space.
3. The Maxtor Agreement requires that Maxtor do all things necessary to
maintain its corporate existence separate and apart from MRC, and by its terms
requires that Maxtor:
a. will conduct all transactions and dealings between
Maxtor and MRC on an arm's-length basis;
b. will not amend, modify or otherwise change the articles
of incorporation or bylaws of MRC in a manner which
adversely affects MRC's existence as a special purpose
vehicle;
c. will not permit, suffer or cause MRC to enter into any
transaction of merger or consolidation, liquidation or
dissolution, or permit, suffer or cause MRC to acquire
by purchase or otherwise all or substantially all of the
business or assets of, or any stock or other evidence of
beneficial ownership of, any Person;
d. is and will be, and at all times enter into its
contracts and otherwise hold itself out to the public
separate and distinct from MRC;
e. will maintain proper corporate records and books of
separate account from those of MRC;
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(1) "Independent Director" is defined in MRC's bylaws as follows:
"Independent Director" shall be an individual who: (i) is not and has not been
(and is not affiliated with a company or fin-n that is or has been) within the
five years immediately prior to such individual's appointment as an Independent
Director either (a) employed as a director, officer, or employee by, (b) a
significant advisor or consultant to, (c) affiliated with a significant customer
or supplier of, (d) engaged under significant personal service contract(s) with,
or (e) affiliated with a tax exempt entity that receives significant
contributions from, the corporation or any of its subsidiaries or affiliates;
(ii) at the time of such individual's appointment as an Independent Director, or
at any time thereafter while serving as Independent Director, is not a legal or
beneficial owner of any direct or indirect equity interest in the corporation or
any of its subsidiaries or affiliates; and (iii) is not a spouse, parent,
sibling or child of any person described by paragraphs (i) and (ii) above.
<PAGE> 187
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Bankers Trust Company
April 8, 1998
Page Five
f. will maintain its assets, funds and transactions
separate from MRC, reflecting such assets and
transactions in financial statements separate and
distinct from those of MRC, and evidencing such assets,
funds and transactions by appropriate entries in the
books and records referred to above, and providing for
its own operating expenses and liabilities from its own
assets and funds other than certain expenses and
liabilities relating to basic corporate overhead which
may be allocated between Maxtor and MRC;
g. shall hold appropriate meetings or obtain such
appropriate consents of its Board of Directors as are
necessary to authorize all Maxtor's corporate actions
required by law to be authorized by the Board of
Directors, keeping minutes of such meetings and of
meetings of its stockholders and observing all other
customary corporate formalities;
4. CRC and the Agent are relying on the separate credit and separateness
of MRC from Maxtor; would be prejudiced by any consolidation of Maxtor with MRC;
and would actively oppose any attempt under the Bankruptcy Code to substantively
consolidate the entities.
5. MRC will comply with the terms of its Articles of Incorporation, the
Bylaws, and the Purchase and Bank Agreements and Maxtor will comply with the
terms of the Maxtor Agreement, with respect to the matters described above.
Based on the representations in the Purchase and Bank Agreements, we
have assumed that MRC, as of the date hereof, has adequate capital for the
normal obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations.
Discussion
The equitable doctrine of substantive consolidation permits a court in a
bankruptcy case to disregard the separateness of two or more entities and to
consolidate the assets and liabilities of those entities as though held and
incurred by a single entity. See, e.g., Chemical Bank New York Trust Co. v.
Kheel, 369 F.2d 845, 847 (2d Cir. 1966).(2) Although the Bankruptcy Code does
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(2) Substantive consolidation should not be confused with procedural
consolidation. Procedural consolidation merely involves combining estates for
administrative matters in the bankruptcy proceeding so as to reduce costs. See,
e.g., In re Delta Corp. v. Hong Kong and Shanghai Banking (In re Delta Corp.),
179 B.R. 773, 777 (Bankr. S.D.N.Y. 1995); In re Amdura Corp., 121 B.R. 862, 868
(Bankr. D. Colo. 1990).
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Bankers Trust Company
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Page Six
not expressly provide for the substantive consolidation of different entities,
courts have exercised their equitable jurisdiction and ordered substantive
consolidation in appropriate circumstances.(3) See, e.g., In re Steury, 94 B.R.
553, 554 (Bankr. N.D. Ind. 1988); In re Vecco Construction Indus., Inc., 4 B.R.
407, 409 (Bankr. E.D. Va. 1980). Because the disregarding of separate entities
is not generally favored, however, a presumption exists against substantive
consolidation, and the party seeking such consolidation has the burden of
establishing the necessity for it. See, e.g., In re Auto-Train Corp. Inc., 810
F.2d 270, 276 (D.C. Cir. 1987).
"Although the term consolidation has a disarmingly innocent sound, it is
no mere instrument of procedural convenience . . . but a measure vitally
affecting substantive rights in equity." In re Flora Mir Candy Corp., 432 F.2d
1060, 1062 (2d Cir. 1970). Therefore, courts generally have treated substantive
consolidation as the exception rather than the rule because of the "possibility
of unfair treatment of creditors who have dealt solely with the Corporation
having a surplus as opposed to those who have dealt with related entities with
deficiencies." In re Continental Vending Machine Corp., 517 F.2d 997, 1001 (2d
Cir. 1975), cert. denied sub nom. James Talcott, Inc. v. Wharton, 424 U.S. 913
(1976); see also Kheel, 369 F.2d at 847 (it should be the "rare case" where
substantive consolidation is granted); In re DRW Property Co., 54 B.R. 489, 494
(Bankr. N.D. Tex. 1985) (courts should grant substantive consolidation sparingly
because of the possibility of unfair treatment of some creditors). Furthermore,
because the rules for substantive consolidation are not statutorily provided,
courts must examine the facts and circumstances of each case to determine if
such an order is warranted.(4)
Substantive consolidation was accomplished in early cases by "piercing
the corporate veil" of the debtor, i.e., by finding that the entity with which
consolidation was sought was the "alter ego" or an "instrumentality" of the
debtor which was used by the debtor to hinder, delay or otherwise defraud
creditors. See, e.g., Maule Industries, Inc. v. Geerstel, 232 F.2d 294 (5th Cir.
1956); Fish v. East, 114 F.2d 177 (10th Cir. 1940). Although later cases relaxed
the requirement of fraud in favor of the two-part test described below, courts
will still pierce the corporate veil to effect a substantive consolidation if
fraud or similar activity is present. See, e.g., Carte Blanche (Singapore) Pte.,
Ltd. v. Diners Club International Inc., 2 F.3d 24, 26 (2d Cir. 1993) (noting
that exceptions to corporate separateness are made "to prevent fraud or other
wrong, or where a
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(3) The power to consolidate is derived from the general equitable powers set
forth in section 105 of the Bankruptcy Code, which provides that "the court may
issue any order, process, or judgment that is necessary or appropriate to carry
out the provisions of this title." 11 U.S.C. Section 105(a).
(4) See 5 Collier on Bankruptcy Section 1100.061 at 1100-35 (15th ed. 1995),
stating that substantive consolidation cases are, to a great degree, sui
generis.
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April 8, 1998
Page Seven
parent dominates and controls a subsidiary"). See also, e.g., In re Daily, 107
B.R. 996 (Bankr. D. Hawaii 1989), rev'd on other grounds, 940 F.2d 1306 (9th
Cir. 1991); In re Stop & Go of America, Inc., 49 B.R. 743 (Bankr. D. Mass.
1985); In re Tureaud, 45 B.R. 658, 662-63 (Bankr. N.D. Okla. 1985), aff'd, 59
B.R. 973 (N.D. Okla. 1986).
Although in early substantive consolidation cases involving the
consolidation of corporate entities, courts looked to state corporate "piercing"
law for guidance, recent decisions have recognized that the comparison of the
two doctrines is not particularly suitable. See, e.g., F.D.I.C. v. Colonial
Realty Co., 966 F.2d 57, 60-61 (2d Cir. 1992) ("The focus of piercing the
corporate veil is the limited liability afforded to a corporation"; whereas, the
focus of substantive consolidation is "the equitable treatment of all
creditors."). Consequently, modern federal courts have increasingly looked to
federal bankruptcy law precedent rather than state corporate law doctrine when
ruling on substantive consolidation motions. See, e.g., Colonial Realty, 966
F.2d at 60-61; Eastgroup Property v. Southern Motel Assoc., Ltd., 935 F.2d 245
(11th Cir. 1991); In re Augie/Restivo Banking Co., 860 F.2d 515 (2d Cir. 1988);
In re Auto-Train Corp., Inc., 810 F.2d 270 (D.C. Cir. 1987); Continental
Vending, 517 F.2d at 1001; In re Flora Mir Candy Corp., 432 F.2d 1060 (2d Cir.
1970); Kheel, 369 F.2d at 847; Soviero v. Franklin National Bank of Long Island,
328 F.2d 446 (2d Cir. 1964); Stone v. Eacho, 127 F.2d 284 (4th Cir.), cert.
denied, 317 U.S. 635 (1942); but see In re Moran Pipe & Supply Co., Inc., 130
B.R. 588 (Bankr. E.D. Okla. 1991) (substantive consolidation invoked based on
alter-ego theory).
Two similar, but not identical, circuit-level tests have evolved to
determine whether to order substantive consolidation, one from the United States
Court of Appeals for the Second Circuit and one from the United States Court of
Appeals for the D.C. Circuit.
Under the D.C. Circuit test, the proponent of substantive consolidation
must show: (1) a substantial identity between the entities to be consolidated;
(2) that consolidation is necessary to avoid some harm or to realize some
benefit; and (3) if a creditor objects and demonstrates that it relied on the
separate credit of one of the entities and that it will be prejudiced by the
consolidation, then the court may order consolidation only if it determines that
the demonstrated benefits of consolidation "heavily" outweigh the harm. See In
re Auto Train Corp., Inc., 810 F.2d 270, 276 (D.C. Cir. 1987); In re Standard
Brands Paint Co., 154 B.R. 563, 571-72 (Bankr. C.D. Cal. 1993); see also Reider
v. FDIC (In re Reider), 31 F.3d 1102,1108-09 (11th Cir. 1994) (adopting D.C.
Circuit standard as modified for the spousal contract); In re Giller, 962 F.2d
796 (8th Cir. 1992) (adopting similar test considering: (1) the necessity of
consolidation due to the interrelationship among the debtors; (2) whether the
benefits of consolidation outweigh the harm to creditors; and (3) prejudice
resulting from not consolidating the debtors); Eastgroup Property, 935 F.2d at
249 (adopting D.C. Circuit test).
Under the Second Circuit test, the proponent must show one of two
alternative grounds for substantive consolidation: (1) that the creditors dealt
with the entities as a single unit and did
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not rely on their separate identity in extending credit or (2) that the affairs
of the entities are so entangled that consolidation will benefit all creditors
because untangling is either impossible or so costly as to consume the assets.
See Colonial Realty, 966 F.2d at 61; In re Augie/Restivo Baking Co., Ltd., 860
F.2d 515, 518 (2d Cir. 1988). If a party in interest objects and demonstrates
one of the two alternative grounds, then the court may order consolidation only
if it determines "that consolidation yields benefits offsetting the harm it
inflicts on objecting parties." F.D.I.C. v. Colonial Realty Co., 966 F.2d at 61
(quoting In re Auto-Train, 810 F.2d at 276).
A. Application of D.C. Circuit Test
1. Establishing a Prima Facie Case for Substantive
Consolidation: Substantive Identity and Avoidance of
Harm or Realization of Benefit
With respect to the first two prongs of the D.C. Circuit test, proof of
which can establish a prima facie case for substantive consolidation, many
federal courts have utilized an objective list of factors. See, e.g., Eastgroup
Property, 935 F.2d at 249-50. The court in Vecco Construction, 4 B.R. 407, 410
(Bankr. E.D. Va. 1980), enumerated the most widely cited criteria (the "Vecco
criteria" and collectively, the "Vecco test") for determining whether
consolidation is prima facie appropriate:
1. The commingling of assets and business functions.
2. The degree of difficulty in segregating and ascertaining
individual assets and liabilities.
3. The existence of parent and intercorporate guarantees on
loans.
4. The transfer of assets without observance of corporate
formalities.
5. The presence or absence of consolidated financial
statements.
6. The unity of interests and ownership between the various
corporate entities.
7. The profitability of consolidating at a single physical
location.(5)
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(5) Accord In re Murray Indus., Inc., 119 B.R. 820, 830 (Bankr. M.D. Fla. 1990);
In re Mortgage Investment Company of El Paso, Tex., 111 B.R. 604, 610 (Bankr.
W.D. Tex. 1990); Holywell Corp. v. Bank of New York, 59 B.R. 340, 347 (S.D. Fla.
1986). See also Fish v. East, 114 F.2d 177, 191 (10th Cir. 1940) (setting forth
list of ten substantially similar factors). It should be stressed, however, that
the factors set forth in Vecco Construction, along
(footnote continued on next page)
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On the basis of the facts and assumptions set forth herein, we believe
that at least four of the seven factors listed in Vecco Construction - 1, 2, 4
and 7 - have little or no applicability here and factors 3, 5 and 6, although
present here to a certain degree, when properly analyzed should not lead a court
to substantively consolidate Maxtor and MRC. Moreover, we note that the presence
of even several of the Vecco Construction factors does not require
consolidation. See Eastgroup Property, 935 F.2d at 250; In re Donut Queen Ltd.,
41 B.R. 706, 709-10 (Bankr. E.D.N.Y. 1984); In re Snider Bros. Inc., 18 B.R.
230, 234 (Bankr. D. Mass. 1982).
With regard to the first factor, we note that the Documents prohibit
commingling of the assets of MRC with those of Maxtor and its Affiliates. With
regard to commingling business functions, the Documents require that MRC not
engage in any business other than the purchase and sale of Receivable Assets as
permitted under the Purchase Documents, which would thereby preclude the
possibility of Maxtor acting with respect to the business functions of MRC.
With regard to the second factor, it should not be difficult, at any
time, to segregate and ascertain the individual assets and liabilities of MRC
since the Documents require that MRC maintain its assets so that they may be
easily segregated and ascertained. Moreover, with regard to MRC's liabilities,
the Documents require that separate books and records be maintained for MRC. MRC
is also required to keep separate and distinct financial statements from those
of Maxtor. Given these requirements, it should not be difficult to ascertain and
segregate the individual assets and liabilities of MRC and Maxtor.
With regard to the third factor, we note that the Maxtor Agreement,
which runs in favor of the Agent for the Beneficiaries, is an absolute guaranty
of obligations of MRC by Maxtor, specifically covering the covenants, agreements
and undertakings of MRC under the Purchase Documents. MRC's obligations under
the Maxtor Sales Agreement, however, should not be considered loan or financing
obligations(6) and this third factor should not be relevant. As to the Purchase
and Bank Agreements, even if MRC's obligations thereunder were determined to be
in the nature of loan or financing obligations, the Maxtor Agreement does not
guarantee such loan
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(footnote continued from previous page)
with additional factors formulated in other cases, are merely "examples of
information that may be useful to courts charged with deciding whether there is
a substantial identity between the entities to be consolidated and whether
consolidation is necessary to avoid some harm or realize some benefit."
Eastgroup Property, 935 F.2d at 250. Therefore, although a "proponent of
consolidation may want to frame his argument using the seven factors outlined in
Vecco Construction Industries, Inc.," the existence or absence of any number of
those factors is not necessarily determinative. Id.
(6) See the reasoned opinion letter of Morrison & Foerster LLP dated the date
hereof regarding true sale of the Receivable Assets from Maxtor to MRC.
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or financing obligations since it expressly states that it creates no recourse
to Maxtor in respect of the collectibility of the Receivables. Rather, it
guarantees MRC's covenants, agreements and undertakings, which do not provide
for recourse to MRC in the event of defaults on payment of Receivables. Thus,
the Agent and the Beneficiaries ultimately look to the Receivable Assets as the
source of funds to repay the Capital and Yield outstanding under the Purchase
and Bank Agreements, and the Maxtor Agreement does not guarantee payment of such
amounts. Consequently, this third factor should have no applicability here.
With regard to the fourth factor, we note that (1) all arrangements and
agreements between MRC and Maxtor will be on terms that are not more or less
favorable than the terms and conditions that could have been obtained, under
similar circumstances, from unaffiliated Persons, (2) there will be no
commingling of assets between MRC and Maxtor, (3) there will be no transfers of
assets (other than on an arm's-length basis) between Maxtor and MRC, and (4)
corporate formalities will be observed by Maxtor and MRC in connection with the
transfer of Receivable Assets under the Agreements.
With regard to the fifth factor, we believe that the court in Vecco
Construction was concerned that the presence of consolidated financial
statements would make it impossible for those creditors who read such statements
to ascertain which assets were owned by which corporation within the
consolidated group. MRC is required to maintain its financial statements and
accounting records separate from those of Maxtor and any Affiliate. To effect
this requirement, the financial statements delivered by MRC to its creditors
will not include assets of Maxtor and the financial statements delivered by
Maxtor to its creditors will contain footnotes or other information establishing
MRC's separate ownership of the Receivable Assets.
The importance of the sixth Vecco Construction factor, the "unity of
interest and ownership," is based upon considerations relating to creditors'
perception of the entities. This factor also should not support an attempt to
substantively consolidate Maxtor and MRC, provided that MRC holds itself out and
operates as a separate entity and otherwise complies with the Documents.
Although there is or may be common ultimate ownership of Maxtor and MRC, the
courts have recognized a distinction between the ownership of a corporation's
stock and of its assets. See In re Beck Indus., Inc., 479 F.2d 410, 415 (2d
Cir.), cert. denied sub nom. Trustees of Beck Indus. Inc. v. Feldman, 414 U.S.
858 (1973).
The seventh factor identified in Vecco Construction goes to the question
of whether, in a reorganization of Maxtor, it would be more economically
efficient to operate Maxtor with MRC as a single entity. Although the corporate
offices of Maxtor and MRC are physically located on the same premises, this
factor should not in itself result in a substantive consolidation of MRC with
Maxtor, provided that MRC holds out and operates itself as a separate entity and
otherwise complies with the Documents and its Articles of Incorporation.
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2. Objecting Creditor's Showing and the Balance of Benefit
Against Harms of Consolidation
When a proponent of substantive consolidation establishes a prima facie
case by meeting the first two elements of the D.C. Circuit test, the burden
shifts to an objecting creditor to show that it relied on the separate credit of
the entities to be consolidated and will be prejudiced by consolidation. See,
e.g., Eastgroup Property, 935 F.2d at 249. If an objecting creditor makes this
showing, then the court must determine whether the demonstrated benefits of
consolidation "heavily" outweigh the harm. Id.
Here, the Agent and Beneficiaries rely on the separate credit and assets
of MRC and not on the credit of any other entity, except to the limited extent
provided in the Maxtor Agreement. Because the Agent and Beneficiaries have
relied on the separate credit of MRC, dealt with MRC separately from all other
parties referenced herein and would be prejudiced by consolidation, as discussed
in the application of the Second Circuit test below, it is unlikely that a court
would find that the benefit of consolidation "heavily" outweighs the harm.
B. Application of the Second Circuit Test
The Second Circuit has stated that the "sole purpose of substantive
consolidation is to ensure the equitable treatment of all creditors" and that
the Vecco factors are "merely variants on two critical factors: (i) whether
creditors dealt with the entities as a single economic unit and 'did not rely on
their separate identity in extending credit,'. . . or (ii) whether the affairs
of the debtors are so entangled that consolidation will benefit all creditors."
In re Augie/Restivo Baking Co., Ltd., 860 F.2d at 518-19; see Colonial Realty,
966 F.2d at 61. Under the Second Circuit standard, proponents of consolidation
must establish one of the above-stated critical factors before consolidation
will be ordered. Where creditors rely on the separate existence of corporate and
other entities in extending credit, or would suffer more than minimal harm from
disregarding such separate existence, the balance of equities weighs against
substantive consolidation. In re Donut Queen, Ltd., 41 B.R. at 710; Holywell
Corp. v. Bank of New York, 59 B.R. at 347.
1. Creditor Reliance
The parties to the Documents are entering into the transactions
contemplated thereby in reliance on the separateness of MRC. One element of such
reliance is based on the premise that the Receivable Assets are subject only to
claims of creditors of MRC and not to the claims of creditors of any other
Person, such as Maxtor. Thus, such parties would be harmed if consolidation were
ordered. Under such circumstances, we assume that the Agent, and if the
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Agent does not have standing, another creditor of MRC would oppose any motion to
consolidate Maxtor and MRC arguing that such consolidation would prejudice
them.(7) Courts have relied upon the existence of such prejudice as grounds for
denying substantive consolidation. See, e.g., In re Flora Mir Candy Corp., 432
F.2d 1060, 1062-63 (2d Cir. 1970); see also Anaconda Building Materials Co. v.
Newland, 336 F.2d 625, 628 (9th Cir. 1964).(8)
As noted above, a court would also consider the resulting harm to
creditors of any such other Person if consolidation were not ordered. As
previously described, any consolidated financial statements of Maxtor and its
subsidiaries will contain footnotes or other information establishing MRC's
separate corporate existence and ownership of the Receivable Assets. Future
creditors therefore should not be able to claim reasonably that they had assumed
that MRC was merely a division or part of another Person. Furthermore, none of
the creditors of any such other Person should be unduly prejudiced as a result
of a court's refusing to consolidate MRC and such other Person.
2. Entanglement of Entities.
Based on the facts and assumptions set forth herein, and as discussed
above in relation to the Vecco criteria and the substantial identity prong of
the D.C. Circuit test, the assets and business functions of MRC will not be so
entangled with those of Maxtor as to make separate identification of their
respective assets impossible or prohibitively costly and therefore enable
consolidation to benefit all creditors.
Some courts, in assessing substantive consolidation, have considered
whether it increases the likelihood of the debtor's rehabilitation and
reorganization. Factors considered in making this determination include the
potential savings in cost and time, the elimination of duplicate
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(7) We express no opinion as to whether a bankruptcy court would order
consolidation should none of the parties to the Documents nor any other party in
interest timely present an objection to substantive consolidation and properly
brief and argue such objection.
(8) Conversely, courts have also noted the absence of objecting parties as a
factor favoring consolidation. See, e.g., In re Standard Brands Paint Co., 154
B.R. 563, 571-72 (Bankr. C.D. Cal. 1993) (court inferred lack of harm to
creditors from the fact that no party in interest objected to consolidation); In
re Buckhead America Corp. et al., Case Nos. 91-978 through 91-986 (Bankr. D.
Del. Aug. 13, 1992) (order granting substantive consolidation of a special
purpose subsidiary with its parent after all objections from the subsidiary's
creditors had been resolved through settlement); In re Drexel Burnham Lambert
Group, Inc., 138 B.R. 723, 766-68 (Bankr. S.D.N.Y. 1992) (citing lack of
objections from creditors in approving a plan of reorganization premised on
substantive consolidation); U.S. v. Frontier Airlines, Inc., 93 B.R. 1014, 1016
(Bankr. D. Colo. 1988) (granting substantive consolidation where "complete
financial separation of the entities would be difficult to accomplish" and "no
party in interest" had objected).
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claims and whether there is a question of who among the debtors is liable. See
Continental Vending, 517 F.2d at 1001.(9) Eliminating the need to disentangle
assets, however, does not, without more, justify consolidation. "Substantive
consolidation should be used only after it has been determined that all
creditors will benefit because untangling is either impossible or so costly as
to consume the assets." Augie/Restivo, 860 F.2d at 519. Based on the facts and
assumptions set forth herein, the assets and business functions of MRC will not
be so entangled with those of Maxtor as to make separate identification of the
MRC's assets impossible or prohibitively costly.
In the event that Maxtor is a debtor in a case under the Bankruptcy
Code, but MRC is not a debtor in such a case, we also note the following: "While
consolidation of debtor and non-debtor entities is possible, it should be
undertaken only in the most unusual circumstances . . . Substantive
consolidation of a separate non-debtor may result in irreparable harm to the
non-debtor affiliate and its creditors." 5 Collier on Bankruptcy paragraph
1100.06 at 1100-33-37 (15th ed. 1995).
Under the circumstances applicable to this transaction, and based upon
the facts and assumptions contained herein, which we have assumed are true and
will continue in the future to be true, we believe that it would be difficult
for a creditor or a trustee of Maxtor in a federal bankruptcy proceeding to
claim justifiably that recognition of MRC as separate from Maxtor would be
inequitable, or result in a fraud or injustice on creditors. Similarly, we
believe it would be difficult for such a party to contend justifiably that the
affairs of MRC and Maxtor were so entangled that it would be too costly or time
consuming to deal with them separately, or that it appeared that the assets of
Maxtor and MRC were available to meet claims of each other's creditors.
Furthermore, based on the facts and assumptions contained herein, we believe
that creditors of MRC and Maxtor, respectively, should be able to show both
reliance solely on the credit and assets of MRC or Maxtor, respectively, and
that they would suffer substantial harm from the consolidation of MRC with
Maxtor.
Based on the foregoing facts, representations, statements and
assumptions being correct and continuing to be correct at all relevant times,
and based on and subject to the qualifications, discussions and analysis
contained herein and the reasoned analysis of analogous case law (although there
is no precedent directly on point), it is our opinion that a United States
bankruptcy court or other court exercising jurisdiction over the case, in the
event of a case under
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(9) See also In re Drexel Burnham Lambert Group, Inc., 138 B.R. at 766
(approving a plan of reorganization premised on substantive consolidation where
no creditors had objected and where establishing to whom actual liability, if
any, should be allocated would be a "herculean task, consuming years of costly
professional services, thereby draining significant amounts of value from the
Debtors' estates").
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April 8, 1998
Page Fourteen
the Bankruptcy Code instituted by or on behalf of or against Maxtor, as debtor,
would not disregard the separate existence of MRC so as to substantively
consolidate the assets and liabilities of MRC with those of Maxtor. Our opinion
is subject to the further qualifications that (i) the assumptions set forth
herein are and continue to be true in all material respects, (ii) there are no
facts unknown to us that would materially affect the validity of the assumptions
and conclusions set forth herein or upon which this opinion is based, (iii) such
case is properly presented and argued, and (iv) the law is properly applied. We
note, however, that substantive consolidation is an equitable doctrine, that
courts have accorded different degrees of importance to the factual elements
before them in determining whether to exercise their equitable power to order
substantive consolidation, and that facts may arise in the future which could
affect a court's determination of whether substantive consolidation is
appropriate. Additionally, any Bankruptcy Code analysis must recognize that the
power of a court of competent jurisdiction with respect to a Bankruptcy Code
case, proceeding or matter is extremely broad. For instance, pursuant to the
powers granted in Section 105(a) of the Bankruptcy Code, "[t]he court may issue
any order, process, or judgment that is necessary or appropriate to carry out
the provisions of the [Bankruptcy Code]."11 U.S.C. Section 105(a). Therefore,
the conclusions reached herein must be considered in light of these broad
statutory and equitable powers of the relevant court over a debtor's property,
estate, creditors and equity interest holders.
We express no opinion as to the availability or effect of a preliminary
injunction, temporary restraining order or such other temporary relief affording
delay pending a determination on the merits in the event that substantive
consolidation is sought.
We have assumed throughout this opinion (i) that there has been no (and
will not be any) fraud in connection with the transactions described herein, and
(ii) the accuracy of the representations and warranties in the Documents as to
the matters set forth herein. The opinions expressed herein are being delivered
to you as of the date hereof, and we assume no obligations to advise you of any
changes of law or fact that may occur after the date hereof, notwithstanding
that such changes may affect the legal analysis or conclusions contained herein.
This opinion has been furnished to you solely in connection with the
transactions described herein and on the condition that the opinions expressed
herein may not be published or otherwise communicated by you or any of your
agents to any other Person without our specific prior written approval in each
instance except to your successors,
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assigns, transferees or prospective transferees and as provided below. We
understand that you may furnish a copy of this opinion to Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Duff & Phelps Credit
Rating Co., Moody's Investors Services, Inc. and Fitch Investors Service, which
shall be entitled to rely hereon for the sole purpose of issuing or confirming
its rating of a securitization which includes the Receivable Assets. By relying
on this opinion, each successor, assign and transferee and the Trustee shall be
deemed to have concurred in your permission for us to make the assumptions we
have made herein. No one other than you, your successors, assigns and
transferees and the Trustee, in connection with the transactions described
herein, may rely upon the opinion expressed herein.
This opinion should be interpreted in accordance with the Special Report
by the TriBar Opinion Committee, Opinions in the Bankruptcy Context: Rating
Agency, Structured Financing, and Chapter 11 Transactions, 46 Bus. Law. 717
(1991).
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE> 198
Exhibit F as executed
Dated as of April 8, 1998
Corporate Receivables Corporation Bankers Trust Company,
450 Mamaroneck Avenue As Trustee
Harrison, New York 10528 Four Albany Street
10th Floor
New York, New York 10006
Citicorp North America, Inc.
individually and as Agent
450 Mamaroneck Avenue
Harrison, New York 10528
Re: Receivables Purchase and Sale Agreements dated as of April 8, 1998
Ladies and Gentlemen:
Each of Maxtor Receivables Corporation, as the Seller under the
Receivables Purchase and Sale Agreements each dated as of April 8, 1998 entered
into by it with each of you, as applicable, and Maxtor Corporation, as the
Seller under the Receivables Contribution and Sale Agreement dated as of April
8, 1998, entered into by Maxtor Corporation and Maxtor Receivables Corporation
(such agreements collectively being the "Agreements"), hereby acknowledges and
agrees that (i) it has received the respective forms of the Agreements and the
other instruments and documents to be furnished by it pursuant thereto, (ii) the
form and substance of the Agreements, each other Purhase Document referred to
therein and such other instruments and documents are satisfactory to it
regarding the consequences and implications of the transactions contemplated
thereby and the terms thereof, and (iii) it has, independently and wihtout
reliance upon any of you, your affiliates or your counsel, made its own
evaluation and decision to enter into the Agreements.
Very truly yours,
MAXTOR RECEIVABLES CORPORATION
By: /s/ Paul J. Tufano
---------------------------------------
Name:
Title:
MAXTOR CORPORATION
By: /s/ Paul J. Tufano
---------------------------------------
Name:
Title:
<PAGE> 199
Exhibit E-3 as executed
April 8, 1998
Corporate Receivables Corporation
450 Mamaroneck Avenue
Harrison, New York 10528
Citicorp North America, Inc.,
as Agent
450 Mamaroneck Avenue
Harrison, New York 10528
Bankers Trust Company
as Trustee
Four Albany Street, 10th Floor
New York, NY 10006
Maxtor Corporation
Ladies and Gentlemen:
I am Glenn H. Stevens, Vice President and General Counsel of Maxtor Corporation
and MRC. This opinion is furnished to you pursuant to Section 3.01(m) of each of
(i) the Receivables Purchase and Sale Agreement, dated as of April 7, 1998,
among Maxtor Receivables Corporation ("MRC"), as Seller, Maxtor Corporation, as
Collection Agent, Corporate Receivables Corporation ("CRC"), Citicorp North
America, Inc. ("CNAI"), individual and as Agent, and Bankers Trust Company, as
Trustee (the "Purchase Agreement"), and (ii) the Bank Agreement (together with
the Purchase Agreement, the "Purchase and Bank Agreements"). Terms defined in
the Purchase Agreement are used herein as therein defined.
In connection herewith, I have examined:
1. The Repurchase Agreement.
2. The Receivables Contribution and Sales Agreement, dated as of
April 7, 1998, between Maxtor Corporation, as Seller, and MRC, as Buyer (the
"Maxtor Sales Agreement").
3. The Purchase Agreement.
4. The Bank Agreement.
5. The Assignment delivered on the date hereof.
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Corporate Receivables Corporation
Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page 2
6. The Maxtor Agreement.
7. The Fee Letter.
8. The documents furnished by the Maxtor Corporation and MRC
pursuant to Sections 3(c) and 3(d) of each Purchase and Bank
Agreement including, without limitation, the following:
a) The Articles of Incorporation of Maxtor Corporation and all
amendments thereto (the "Maxtor Charter");
b) The Bylaws of Maxtor Corporation and all amendment thereto
(the "Maxtor Bylaws");
c) The Articles of Incorporation of MRC and all amendments
thereto (the "MRC Charter"); and
d) The Bylaws of MRC and all amendments thereto (the "MRC
Bylaws").
9. Such other documents, agreements, and instruments as I have
considered necessary or relevant in order for me to provide this opinion.
My opinions expressed below are limited to the General Corporation Law of the
State of Delaware, the laws of the State of California and the federal laws of
the United States as in effect on the date hereof.
Based upon the foregoing and upon such investigation as I have deemed necessary,
I am of the following opinion:
1. Maxtor Corporation is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
2. MRC is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of California. Maxtor Corporation is
the owner of 100% of the issued and outstanding shares of capital stock of MRC.
3. The execution, delivery and performance by Maxtor Corporation of
the Repurchase Agreement, the Maxtor Sales Agreement, the Purchase and Bank
Agreements and the Maxtor Agreement (collectively, the "Maxtor Documents") are
within its corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (i) the Maxtor Charter or the Maxtor
Bylaws, (ii) any material law, rule or regulation applicable to Maxtor
Corporation or (iii) any material contractual or legal restriction applicable to
Maxtor
<PAGE> 201
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Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page 3
Corporation. The Maxtor Documents have been duly executed and delivered
on behalf of Maxtor Corporation.
4. The execution, delivery and performance by MRC of the Maxtor
Sales Agreement, each Purchase and Bank Agreement and the Fee Letter
(collectively, the "MRC Documents"), are within its corporate powers, have been
duly authorized by all necessary corporate action, and do not contravene (i) the
MRC Charter or the MRC Bylaws, (ii) any material law, rule or regulation
applicable to MRC or (iii) any material contractual or legal restriction
applicable to MRC. The MRC Documents have been duly executed and delivered on
behalf of MRC.
5. No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by Maxtor Corporation of the Maxtor
Documents except for the filings of the Financing Statements referred to in
paragraph (d) of the opinion of Morrison & Foerster LLP and as otherwise stated
in such paragraph (d).
6. No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by MRC of the MRC Documents except
for the filings of the Financing Statements referred to in paragraph (h) of the
opinion of Morrison & Foerster LLP and as otherwise stated in such paragraph
(h).
7. To my knowledge, there are no pending or overtly threatened
actions or proceedings against Maxtor Corporation or any of its subsidiaries
before any court, governmental agency or arbitrator which purport to affect the
legality, validity, binding effect or enforceability of the Maxtor Documents
which are likely to materially adversely affect the ability of Maxtor
Corporation to perform its obligations thereunder.
8. To my knowledge, there are no pending or overtly threatened
actions or proceedings against MRC or any of its subsidiaries before any court,
governmental agency or arbitrator which purport to affect the legality,
validity, binding effect or enforceability of the MRC Documents which are likely
to materially adversely affect the ability of MRC to perform its obligations
thereunder.
Morrison & Foerster LLP may rely upon the opinions set forth in paragraphs 1
through 8 of this opinion in rendering its opinions furnished pursuant to
Sections 3.01(k) and (l) of each Purchase and Bank Agreement.
Very truly yours,
/s/ Glenn H. Stevens
<PAGE> 202
Corporate Receivables Corporation
Citicorp North America, Inc.
Bankers Trust Company
April 8, 1998
Page 4
Glenn H. Stevens
Vice President, General Counsel
and Secretary
<PAGE> 203
Exhibit H as executed
RECEIVABLES CONTRIBUTION AND SALE AGREEMENT
Dated as of April 8, 1998
Between
MAXTOR CORPORATION,
as the Seller
and
MAXTOR RECEIVABLES CORPORATION,
as the Buyer
<PAGE> 204
RECEIVABLES CONTRIBUTION AND SALE AGREEMENT
Dated as of April 8, 1998
MAXTOR CORPORATION, a Delaware corporation (the "Seller"), and
MAXTOR RECEIVABLES CORPORATION, a California corporation (the "Buyer"), agree as
follows:
PRELIMINARY STATEMENTS.
(1) Certain terms which are capitalized and used throughout this
Agreement, unless otherwise defined in this Agreement, are defined in Article I
of the Purchase Agreement referred to below.
(2) The Seller, Corporate Receivables Corporation, a California
corporation (the "Purchaser") and Citicorp North America, Inc. ("CNAI"), as
Agent, were each party to the Receivables Purchase and Sale Agreement dated as
of March 30, 1996 (the "Original Purchase Agreement"), whereby the Seller had
from time to time sold to the Purchaser, and the Purchaser had from time to time
purchased from the Seller, "Purchase Interests" (as defined in the Original
Purchase Agreement). The Seller, Citibank, N.A. ("Citibank"), and CNAI were each
party to a Receivables Purchase and Sale Agreement dated as of March 30, 1996,
(the "Original Bank Agreement" and, together with the Original Purchase
Agreement, the "Original Agreements").
(3) On the Closing Date, the Purchaser and the Seller each will
have entered into, and fully performed, the Receivables Repurchase Agreement
dated as of April 8, 1998 by and among the Purchaser, the Seller, Citibank and
the Agent (as amended, supplemented or otherwise modified from time to time, the
"Repurchase Agreement"), whereby the Seller will have repurchased each
"Purchased Interest" previously purchased by the Purchaser pursuant to the
Original Purchase Agreement.
(4) The buyer is entered into (a) the Receivables Purchase and
Sale Agreement dated as of April 8, 1998 (as the same may from time to time be
amended, supplemented or otherwise modified in accordance with its terms, the
"Purchase Agreement") among the Buyer (as the "Seller" thereunder), Maxtor
Corporation, as Collection Agent, the Purchase, CNAI, as Agent for the Purchaser
and any other Owners of Purchased Interest, and Bankers Trust Company, as
Trustee (the "Trustee"), and (b) the Receivables Purchase and Sale Agreement
dates as of April 8, 1998 (as the same may from time to time be amended,
supplemented or otherwise modified in accordance with its terms, the "Bank
Agreement" and, together with the Purchase Agreement, the "Purchase and Bank
Agreements") among the Buyer (as the "Seller") thereunder), the banks and other
financial institutions parties thereto (collectively, the "Secondary
Purchasers"), CNAI, as Agent for the Secondary Purchasers, and the Trustee.
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(5) Pursuant to the Purchase and Bank Agreements the Buyer will
sell interests in the Subject Receivables existing at the close of business of
the Buyer on the Closing Date and arising from time to time thereafter to the
extent of the Purchased Interests as defined in the Purchase and Bank
Agreements.
(6) The Seller is, effective as of the Closing Date, assigning to
the Buyer all of the Seller's right, title and interest in and to the Receivable
Assets existing at the close of business of the Seller on the Closing Date.
(7) The Trustee has agreed to (i) maintain certain accounts in
which Collections are held, (ii) at the direction of the Collection Agent,
distribute such Collections, (iii) review certain reports prepared by the
Collection Agent and (iv) perform various other functions in connection
therewith, in each case on the terms and conditions set forth in the Purchase
and Bank Agreements.
(8) The Seller wishes to sell to the Buyer, and the Buyer wishes
to buy from the Seller, on the terms and conditions set forth herein, from time
to time, all Receivable Assets existing at the close of business of the Seller
on the Closing Date and arising from time to time thereafter.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
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):
"Closing Sale" has the meaning specified in Section 2.02(b).
"Discount Percentage" has the meaning specified for such term in
Schedule I to this Agreement.
"Indemnified Party" has the meaning specified for such term in
Section 6.01.
"Initial Capital Contribution" has the meaning specified in
Section 2.02(b).
"Purchase Price" has the meaning specified in Section 2.02(c).
"Receivable Assets" has the meaning specified in Section 2.01(a).
"Related Security" means, with respect to any Receivable:
(i) all of the Seller's interest in any merchandise
(including returned merchandise), if any, relating to the sale which gave rise
to such Receivable;
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(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;
(iii) 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.
"Re-Purchase Price" has the meaning specified in Section 2.02(b).
"Sale" has the meaning specified in Section 2.02(a).
"Termination Date" means the later of (i) the Facility
Termination Date under and as defined in the Purchase Agreement and (ii) the
Facility Termination Date under and as defined in the Bank Agreement.
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 each of the words "to" and "until" means "to but excluding".
ARTICLE II
SALE OF RECEIVABLES
SECTION 2.01. Sale of Receivables. (a) The Seller hereby agrees
to sell and assign, without recourse (except as expressly provided in the
Purchase Document), to the Buyer, on the terms and subject to the conditions set
forth herein, all the Seller's right, title and interest in, to and under all
Receivables, all Related Security with respect thereto, all Collections with
respect thereto and all proceeds of the foregoing, together with all the
Seller's rights, remedies, powers and privileges with respect to such
Receivables and the related Contracts, existing at the close of business of the
Seller on the Closing Date and arising from time to time thereafter (all such
Receivables, Related Security, Collections, proceeds, rights, remedies, powers
and privileges related to such Receivables and the related contracts being
referred to collectively as the "Receivable Assets").
(b) The parties to this Agreement intend that the transactions
contemplated hereby shall be, and shall be treated as, a purchase by the Buyer
and a sale by the Seller of Receivable Assets and not as a lending transaction.
The foregoing sales and assignments do not constitute and are not intended to
result in a creation of assumption by the Buyer of any
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obligation or liability with respect to any Receivable Asset or Contract, nor
shall the Buyer be obligated to perform or otherwise be responsible for any
obligation of the Seller or any other Person in connection with any Receivable
Asset or under any agreement or instrument relating thereto, including but not
limited to any Contract or any other obligation to any Obligor.
(c) In connection with the foregoing sales and assignments, the
Seller agrees to record and file, at its own expense, proper financing
statements (and proper continuation statements with respect to such financing
statements when applicable) with respect to the Receivable Assets now and
hereafter from time to time acquired by the Buyer under this Agreement, in such
manner and in such jurisdictions as are necessary to perfect the sales and
assignments of the Receivable Assets to the Buyer hereunder, and to deliver
file-stamped copies of such financing statements or other evidence of such
filings to the Buyer and the Agent on or prior to the initial Purchase under the
Purchase and Bank Agreements. Such financing statements shall name the Buyer as
buyer/secured party, the Seller as seller/debtor and the Agent, as assignee.
SECTION 2.02. Terms of Sales. (a) On the terms and subject to the
conditions set forth in this Agreement, the Buyer agrees to make all or part of
the payments of Purchase Price and Re-Purchase Price (as determined in
accordance with paragraph (b) and (c) below) by issuing (or increasing the
principal amount outstanding under) a subordinated promissory note in the form
of Exhibit A to be issued by the Buyer to the Seller (each such subordinated
promissory note, together with all promissory notes issued from time to time in
substitution therefor or renewal thereof (which substitutions or renewals shall
also be in the from of Exhibit A), a "Term Note").
(b) On the Closing Date, (i) the Seller shall contribute an
undivided 5% interest in the Seller's right, title and interests in, to and
under the Receivables existing on the Closing Date, including, without
limitation, all Receivables repurchased by the Seller under the Repurchase
Agreement, as a contribution of capital by the Seller to the Buyer (the "Initial
Capital Contribution") the remainder of such Receivables being, the "Adjusted
Receivables," and (ii) the Buyer shall buy from the Seller, and the Seller shall
sell and assign to the Buyer, the remainder of the Seller's right, title and
interest in, to and under such Receivable Assets existing at the close of
business of the Seller on the Closing Date (the "Closing Sale"). As
consideration for the Closing Sale, the Buyer shall deliver to the Seller a duly
executed Term Note made payable to the Seller. The principal amount outstanding
under the Term Note on the Closing Date shall be equal to the product of (i) the
aggregate Outstanding Balance of the Adjusted Receivables, and (ii) the Discount
Percentage.
(c) On each Business Day after the Closing Date (each, a
"Purchase Date"), the Buyer shall buy from the Seller, and the Seller shall sell
and assign to the Buyer, the Seller's right, title and interests in, to and
under those Receivable Assets that arise on such Business Day (each such
transaction being a "Sale"). As consideration for such continuing ale and
assignment of Receivable Assets after the Closing Date, the Buyer shall pay (or
cause to be paid) to the Seller on the day of each Sale an amount (the "Purchase
Price") equal to the product of (i) the aggregate Outstanding Balance and
Receivables that are newly created from time to time on the
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day of such Sale, and (ii) the Discount Percentage applicable to such
Receivables; provided, however, that the Purchase Price shall not be less than
the reasonably equivalent value of the Receivable Assets to which such Purchase
Price relates, and in the event that, in the reasonable judgment of either the
Seller or the Buyer, such Purchase Price is less than such reasonably equivalent
value or does not reflect the fair market value of such Receivable Assets,
within five Business Days after the Business Day on which such receivable Assets
are sold, each of the Seller and the Buyer (after notice to the other party)
shall appoint a Person (other than an Affiliate of the Buyer or Seller) in the
business of purchasing trade receivables, and such Persons shall appoint a
Person (other than an Affiliate of the Buyer or Seller) in such business, and
such Persons shall make an independent appraisal of the value of such Receivable
Assets and shall determine a Purchase Price which reasonably reflects the fair
market value of such Receivable Assets.
(d) On each Purchase Date, the actual Purchase Price for
Receivable Assets sold on such Purchase Date shall be determined in the Daily
Report and shall be paid by the Buyer. Such Purchase Price to be so paid by the
Buyer shall be paid in cash to the Seller in U.S. dollars, in same day funds, to
the extent of funds available to the Buyer; provided, however, that the excess,
if any, of the Purchase Price over the cash payment therefor shall be paid
first, by reducing the principal amount outstanding under the Demand Note (as
defined below) in an amount up to but no exceeding the lesser of (i) the amount
of such excess and (ii) the then outstanding principal amount of the Demand
Note, and second, to the extent of any remaining excess by increasing the
principal amount outstanding under the Term Note in an amount equal to such
remaining excess. To the extent that a payment is due and payable (and permitted
to be paid) under the Term Note issued to the Seller, any amount of cash
available to the Buyer from time to time in excess of cash needed to purchase
Receivable Assets pursuant to this paragraph (d) shall be paid directly to the
Seller and applied first to pay accrued and unpaid interest on the Term Note and
second to reduce the principal amount outstanding under the Term Note.
(e) On the terms and subject to the conditions set forth in this
Agreement, so long as there is no principal amount outstanding under the Term
Note, the Buyer agrees to make demand loans ("Demand Loans") to the Seller prior
to the Termination Date in such amounts as the Seller may request (through the
Collection Agent) from time to time in amounts not exceeding the amount of cash
available to the Buyer from time to time in excess of cash needed to purchase
Receivable Assets pursuant to Section 2.02(d), which Demand Loans shall be
evidenced by a demand promissory note in the form of Exhibit B issued by the
Seller to the order of the Buyer (each such demand promissory note, together
with all promissory notes issued from time to time in substitution therefor or
renewal thereof (which substitutions and renewals shall also be in the form of
Exhibit B), a "Demand Note").
(f) The Collection Agent shall make all appropriate record
keeping entries with respectzzmpTabHolderto the Term Note and the Demand Note or
otherwise to reflect the foregoing payments and adjustments and toe reflect
disbursements and payments to the Term Loan and the Demand Loan, and the
Collection Agent's books and records shall constitute rebuttable presumptive
evidence of the principal amount of and accrued interest on any Term
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Note or Demand Note at any time. Further, the Collection Agent shall hold each
Term Note or Demand Note for the benefit of Seller. The Seller hereby
irrevocably authorizes the Collection Agent to mark the Demand Note "CANCELLED"
and to return such Demand Note to the Buyer upon the final payment thereof after
the occurrence of the Termination Date.
SECTION 2.03. General Settlement Procedures. (a) If on any day
the Outstanding Balance o any Receivable is either (i) reduced as a result of
any defective, rejected or returned merchandise or services, any cash discount,
or any adjustment by the "Seller" (as defined in the Purchase and Bank
Agreements), the Seller or any Affiliate thereof or (ii) reduced or canceled as
a result of any dispute or claim, of any setoff in respect of any dispute or
claim, by the Obligor thereof against such "Seller", the Seller or any Affiliate
thereof (whether such dispute or claim arises out of the same or a related
transaction or any unrelated transaction), the Seller shall be deemed to have
received on such day a Collection of such Receivable in the amount of such
reduction or cancellation (unless such Seller shall be deemed to have received
on such day a Collection in full of such Receivable pursuant to the succeeding
sentence) and the Seller shall make the payment required to be made by it in
connection with such deemed Collection on the day required under, and otherwise
pursuant to, Section 4.01(h). If on any day any of the representations or
warranties in Section 3.01(h) is no longer true with respect to a Receivable
Asset, the Seller shall be deemed to have received on such day a Collection in
full of the relevant Receivable, and the Seller shall make the payment required
to be made by it in connection with such deemed Collection on the day required
under, and otherwise pursuant to Section 4.01(h). In the case of each of the two
preceding sentences, upon any actual payment in full by the Seller of any such
Receivable, the Seller shall be deemed to have repurchased (without recourse and
without representation or warranty, express or implied) such receivable and such
Receivable shall cease to be a "Receivable" for purposes of this Agreement
(unless and until the Agent or any Owner is at any time required to return all
or any portion of such payment for any reason).
(b) Except as otherwise stated in this Section 2.03 or as
otherwise required by law or the underlying contract or the applicable Credit
and Collection Policy, all Collections received from an Obligor of any
Receivable shall be applied to Receivables then outstanding of such Obligor in
the other of the age of such Receivables, starting with the oldest such
Receivable, except if payment is designated by such Obligor, no later than ten
Business Days after such payment shall have been made by such Obligor, for
application to specific Receivables.
SECTION 2.04. Payments and Computations, Etc. (a) All amounts to
be paid or deposited by the Seller hereunder shall be paid or deposited in
accordance with the terms hereof no later than 2:00 p.m. (New York City time) on
the day when due in lawful money of the United States of America in same day
funds to the Buyer as directed by the Buyer to the Seller in writing or by
adjustments to the Term Note or Demand Note, as applicable. The Seller shall, to
the extent permitted by law, pay to the Buyer interest on all amounts not paid
or deposited when due hereunder at 1% per annum above the Alternate Base Rate in
effect from time to time, payable on demand, provided, however, that such
interest rate shall not at any time exceed the maximum rate permitted by
applicable law. All computations of interest and fees hereunder
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shall be made on the basis of a year of 360 days for the actual number of days
(including the first but excluding the last day) elapsed.
(b) The Seller hereby irrevocably and unconditionally waives and
relinquishes to the fullest extent it may legally do so (i) any express or
implied vendor's lien, and any other lien, security interest, charge or
encumbrance, which would otherwise e imposed on or affect any Receivable Asset
on account of any unpaid amount of any Purchase Price therefor or an account of
any other unpaid amounts otherwise payable by the Buyer under or in connection
with this Agreement or otherwise and (ii) with respect to the obligations of the
Seller to make payments or deposits under this Agreement (including, without
limitation, payments under Sections 2.03 and 6.01), any set-off (other than as
permitted under Section 2.20 or under Section 2.03), counterclaim, recoupment,
defense and other right or claim which the Seller may have against the Buyer as
a result of or arising out of the failure of the Buyer to pay any amount on
account of any Purchase Price under Sections 2.01 and 2.02 or any other amount
payable by the Buyer to the Seller under this Agreement or otherwise.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Seller. The
Seller represents and warrants as of the date hereof and as of the date of each
Sale hereunder, as follows:
(a) The Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction indicated at
the beginning of this Agreement.
(b) The execution, delivery and performance by the Seller of each
Purchase Document to be delivered by it hereunder and the transactions
contemplated hereby and thereby, and the Seller's use of the proceeds of Sales,
are within the Seller's corporate powers, have been duly authorized by all
necessary corporate action, do not contravene (i) the Seller's charter or
by-laws or (ii) any law or Contract or other contractual restrictions binding on
or affecting the Seller, and do not result in or require the creation of any
Adverse Claim (other than pursuant hereto) upon or with respect to any of its
properties; and no transaction contemplated hereby requires compliance with any
bulk sales act or similar law.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body or other
person is required for the due execution, delivery and performance by the Seller
of any Purchase Document to be delivered by it hereunder or thereunder, or for
the perfection of or the exercise by the Agent or any Owner of its rights and
remedies under each such Purchase Document, except for (i) the filings of the
financing statements referred to in Article III of the Purchase and Bank
Agreements, all of which, on or prior to the Closing Date, will have been duly
made and be in full force and effect, and (ii) upon any Person's becoming a
Selling Affiliate under the Purchase and Bank Agreements, the filings of the
financing statements required pursuant to the definition of the term "Selling
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Affiliate" in the Purchase and Bank Agreements, all of which, on or prior to the
date such person become a Selling Affiliate, will have been duly made and be in
full force and effect.
(d) Each Purchase Document is, or when delivered hereunder or
thereunder will be, the legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its respective terms.
(e) The consolidated balance sheets of the Seller and its
subsidiaries as at September 27, 1997 and the related consolidated statements of
income and cash flows of the Seller and its subsidiaries for the nine months
then ended, copies of which have been furnished to the Agent, fairly present,
subject to year-end audit adjustments, the consolidated financial condition of
the Seller and its subsidiaries as at such date and consolidated results of the
operations o the Seller and its subsidiaries for the period ended on such date,
all in accordance with generally accepted accounting principles consistently
applied, and, since September 27, 1997, there has been no material adverse
change in such condition or operations except as and to the extent projected or
otherwise disclosed in the Seller's quarterly report on Form 10-Q for the fiscal
quarter ending September 27, 1997 or in Schedule V hereto.
(f) There is no pending or to the knowledge of the executive
officers of the Seller threatened action or proceeding affecting the Seller or
any of its subsidiaries before an court, governmental agency or arbitrator which
may materially adversely affect (i) the collectibility of the Receivables or the
ability of the Seller, any Selling Affiliate or the Collection Agent to collect
the Receivables or (ii) the ability of the Seller or any Selling Affiliate to
perform its obligations under any Purchase Document to be delivered by it
hereunder, or which purports to affect the legality, validity or enforceability
of any Purchase Document.
(g) No proceeds of any Sale will be used to purchase or carry any
margin stock (within the meaning of Regulation U issued by the Board of
Governors of the Federal Reserve System).
(h) Immediately prior to the Closing Sale and each Sale hereunder
of any Receivable Asset, the Seller is the legal and beneficial owner of the
Receivable Assets, free and clear of any Adverse Claim except as created by this
Agreement, or to the extent created by the Agent or the Purchaser or any Owner.
Upon each Sale, the Seller shall transfer to the Buyer (and the Buyer shall
acquire) a valid and perfected ownership interest in each Receivable Asset, free
and clear of any Adverse Claim except as created by this Agreement, or to the
extent created by the Agent or the Purchaser or any Owner. No effective
financing statement or other instrument similarly in effect covering any
Receivable Asset or any Lock Box Account or other deposit account, to the extent
any Collections are from time to time deposited therein, is on file in any
recording office, except those filed in favor of the Agent relating to the
Purchase Documents, or in favor of the Buyer and the Agent hereunder or those
listing the Seller as secured party and the applicable Obligor as debtor.
(i) Each Purchase Report or Daily Report (in each case if
prepared by the Seller or any Selling Affiliate or any Affiliate of any thereof,
or to the extent that information contained therein is supplied by the Seller or
any Selling Affiliate or any Affiliate of any
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thereof), notice or other written item of information, exhibit, financial,
statement, document, book, record ore report furnished or to be furnished at any
time by the Seller or any Selling Affiliate to the Agent of any Owner in each
case in connection with the Purchase and Bank Agreements is or will be accurate
in all material respects as of its date of (except as otherwise disclosed in
writing to the Agent or such Owner, as the case may be, at such time) as of the
date so furnished and as of such relevant date no such document contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements contained therein, in
the light of the circumstances under which they were made, not misleading.
(j) The chief place of business and chief executive office of the
Seller and the office where the Seller keeps its records concerning the
Receivable Assets are located at the address specified in Section 7.02 hereto
(or at such other locations, notified to the Agent in accordance with Section
4.01(f), in jurisdiction where all action required by Section 5.04 has been
taken and completed).
(k) The names and addresses of all the Lock Box Banks, together
with the account numbers of the Lock Box Accounts at such Lock Box Banks, are
specified in Schedule I to the Purchase and Bank Agreements (or at such other
Lock Box Banks and/or with such other Lock Box Accounts as have been notified to
the Agent and for which Lock Box Agreements have been executed in accordance
with Section 6.06(b) of the Purchase and Bank Agreements).
(l) Neither the Seller nor any Affiliate (of the type set forth
in clause (i)(x) of the definition of the term "Affiliate") of the Seller has
any direct or indirect ownership or other financial interests in the Agent, the
Purchaser or any Bank.
(m) Each purchase of Receivable Assets hereunder will constitute
(i) a "current transaction" within the meaning of Section 3(a)(3) of the
Securities Act of 1933, as amended, and (ii) a purchase or other acquisition of
notes, drafts, acceptances, open accounts receivable or other obligations
representing part or all of the sales price of merchandise, insurance or
services within the meaning of Section 3(c)(5) of the Investment Company Act of
1940, as amended.
(n) None of the Receivable Assets is evidenced by any
"instrument" or "chattel paper" within the meaning of the UCC in effect in the
State of California other than any Receivable (i) which shall have become a
Defaulted Receivable after the date on which such Receivable became a Receivable
Asset hereunder (or which was a Defaulted Receivable on the Closing Date) and
(ii) in connection with which Defaulted Receivable the Seller s Collection Agent
shall have accepted an instrument, which instrument shall have been duly
endorsed and delivered to the Agent by the Seller, to maximize the Collections
thereof as contemplated by Section 6.02(c) of the Purchase and Bank Agreements.
(o) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Plan that has resulted or is reasonably likely to
result in a material liability of the Seller.
(p) The aggregate Insufficiency under all Plans does not exceed
$10,000,000.
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(q) Neither the Seller nor any ERISA Affiliate of any thereof has
incurred or is reasonably expected to incur any material Withdrawal Liability
(that has not been satisfied) to any Multiemployer Plan.
(r) Neither the Seller nor any ERISA Affiliate of any thereof has
been notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or has been terminated, within the meaning of Title IV
of ERISA, and no Multiemployer Plan is reasonably expected to be in
reorganization or to be terminated, within the meaning of Title IV of ERISA.
(s) The Seller and its subsidiaries have no material liability
with respect to "expected postretirement benefit obligations" within the meaning
of Statement of Financial Accounting Standard No. 106.
(t) The Seller has not changed its name during the four month
period prior to the date hereto, and has no trade names, fictitious names,
assumed names or "doing business as" names.
(u) With respect to all Receivable Assets (other than the Initial
Capital Contribution), the Buyer has purchased such Receivable Assets from the
Seller in exchange for payment (made by the Buyer to the Seller in accordance
with the provisions of this Agreement) in an amount which constitutes fair
consideration and approximates fair market value for such Receivable Assets 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. No such sale has been made for or on account of an
antecedent debt owed by the Seller or to the Buyer, and no such sale or
contribution is or may be voidable or subject to avoidance under any section of
the Federal Bankruptcy Code.
(v) The Seller has not sold, assigned, transferred, pledged or
hypothecated any interest in any Receivable Assets to any Person other than as
contemplated by this Agreement.
(w) The Seller has complied with the Credit and Collection Policy
in all material respects and since the date of this Agreement there has been no
change in the Credit and Collection Policy except as permitted hereunder.
(x) The obligations of the Seller hereunder to make payments in
respect of fees and indemnities payable to the Buyer or any Indemnified Party
rank at least equally with indebtedness of the Seller which is not contractually
subordinated.
(y) The Seller has not granted any Person other than the Agent
dominion and control of any Lock Box Account, or the right to take dominion and
control over any Lock Box Account at a future time or upon the occurrence of a
future event.
(z) The Seller has filed, or caused to be filed or be included
in, all tax reports and returns (federal, state, local and foreign), if any,
required to be filed by it and paid, or caused to be paid, all amounts of taxes,
including interest and penalties required to be paid by it, except
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for such taxes (i) as are being contested in good faith by proper proceedings
and (ii) against which adequate reserves shall have been established in
accordance with and to the extent required by GAAP, but only so long as the
proceedings referred to in clause (i) above could not subject the Agent or any
other Indemnified Party to any civil or criminal penalty or liability or involve
any material risk of the loss, sale or forfeiture of any property, rights or
interests covered hereunder or under any other Purchase Document.
(aa) There are no Adverse Claims (including, without limitation,
liens or retained security titles of conditional vendors, but excluding any
Adverse Claims created hereunder) of any nature whatsoever on the Receivable
Assets. The Seller is not a party to any contract, agreement, lease or
instrument the performance of which, either unconditionally or upon the
happening of an event, will result in or require the creation of any Adverse
Claim on the Receivable Assets, or otherwise result in a violation of this
Agreement or any other Purchase Document, other than any Adverse Claims created
pursuant to any Purchase Document.
(bb) (i) The Seller is not a party to any indenture, loan or
credit agreement or any lease or other agreement or instrument or subject to any
organization restriction that could reasonably be expected to have, and no
provision of applicable law or governmental regulation could reasonably be
expected to have such an effect on the ability of the Seller to carry out its
obligations hereunder or under any other Purchase Document, and (ii) neither the
Seller not, to the best of the knowledge of the Seller, any other party is in
default under or with respect to this Agreement or any other contract,
agreement, lease or other instrument to which the Seller is a party and which is
material to the Seller's condition (financial or otherwise), business,
operations, property or prospects, and neither the Seller nor any such other
party has delivered or received any notice of default thereunder.
(cc) The Lock Box Banks are the only institutions holding Lock
Box Accounts for the receipt of payments from all Obligors, and such Obligors
have been instructed or, upon the creation of Receivables owed by them, will be
instructed to make payments only to Lock Box Accounts, and such instructions
have not been modified or revoked by the Seller and are in full force and
effect.
ARTICLE IV
GENERAL COVENANTS OF THE SELLER
SECTION 4.01. Affirmative Covenants of the Seller. Until the
Collection Date, the Seller, will, unless the Buyer 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 Receivable Assets.
(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
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to preserve and maintain such existence, rights, franchises, privileges and
qualifications would materially adversely affect the interests of the Buyer
hereunder or in and to the Receivable Assets, 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 Buyer, or its agents
or representatives, at the Seller's expense, (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, its Affiliates or the agents of the Seller or its Affiliates
relating to the Receivable Assets and the Lock Box Account activity 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
Receivable Assets 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 Buyer 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 Buyer to perform and deliver to the Buyer a written report of, an audit with
respect to the Receivable Assets, 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 to the Purchase and Bank Agreements.
(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 Receivable Assets at the address of the Seller referred
to in Section 3.01(j) on the date hereof or, upon 30 days' prior written notice
to the Buyer, at any other locations in a jurisdiction within the United States
where all action required by Section 5.04 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.
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(h) Collections. (i) Instruct, or cause to be instructed, all
Obligors to make all payments in respect of Receivable Assets directly to a Lock
Box Account,
(ii) if the Seller shall otherwise 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 response 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, and
(iii) upon the occurrence of any Event of Insecurity,
cause the Lock Box Banks to immediately sweep Collections from the Lock Box
Accounts to the Concentration Account.
(i) Maintenance of Separate Exercise. Do all things necessary to
maintain its corporate existence separate and apart from the Buyer, including,
without limitation, (i) maintaining proper corporate records and books of
account separate from those of the Buyer; (ii) maintaining its assets, fund, and
transactions separate from those of the Buyer, reflecting such assets and
transactions in financial statements separate and distinct from those of the
Buyer, and evidencing such assets, funds and transactions by appropriate entries
in the books and records referred to in clause (i) above, and providing for its
own operating expenses and liabilities from its own assets and funds other than
certain expenses and liabilities relating to basic corporate overhead which may
be allocated between itself and the Buyer; (iii) holding such appropriate
meetings or obtaining such appropriate consents of its Board of Directors as are
necessary to authorize all the Seller's corporate actions required by law to be
authorized by the Board of Directors, keeping minutes of such meetings and of
meetings of its stockholders and observing all other customary corporate
formalities (and any successor Seller not a corporation shall observe similar
procedures in accordance with its governing documents and applicable law); (iv)
at all times entering into its contracts and otherwise holding itself out to the
public under the Seller's own name as a legal entity separate and distinct from
the Buyer; and (v) conducting all transactions and dealings between the Seller
and the Buyer on an arm's-length basis.
(j) Compliance with Opinion Assumptions and Constituent
Documents. Without limiting the generality of Section 4.01(i) above, maintain in
place all policies and procedures, and take and continue to take all actions,
described in the assumptions as to facts set forth in, and forming the basis of,
the opinions set forth in the opinion delivered to the Agent in substantially
the form of the opinion delivered pursuant to Section 3.01(a) of the Purchase
and Bank Agreements, and comply with, and cause compliance with, the provisions
of the constituent documents of the Buyer delivered to the Agent pursuant to
Section 3.01 of the Purchase and Bank Agreements as the same may, from time to
time, be amended, modified or otherwise supplemented with the prior written
consent of the Agent.
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(k) Purchase of Receivable Assets from the Seller. With respect
to all Receivable Assets outstanding from time to time (other than the Initial
Capital Contribution) this Agreement, sell such Receivable Assets to the Buyer
in exchange for payment (made in accordance with this Agreement) in an amount
which constitutes fair consideration and approximates fair market value for such
Receivable Asset 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.
(l) Maxtor Agreement. At is 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 Maxtor Agreement, maintain the
Maxtor Agreement in full force and effect, enforce the Maxtor Agreement 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 Maxtor
Agreement 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 4.02. Reporting Requirements of the Seller. Until the
Collection Date, the Seller will, unless the Buyer shall otherwise consent in
writing, furnish to the Agent and the Trustee:
(a) 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 executive officer, chief operating officer, 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) 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 this Agreement;
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(e) 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 Receivable Assets on such day; and
(f) such other information, documents, records or reports
respecting the Receivable Assets or the condition or operations, financial or
otherwise, of the Seller or any of its subsidiaries as the Agent may from time
to time reasonably request.
SECTION 4.03. Negative Covenants of the Seller. Until the
Collection Date, the Seller will not, without the written consent of the Buyer:
(a) Sales, Liens, Etc. Except as otherwise provided in the
Purchase Documents, 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
any Owner) upon or with respect to, the Seller's undivided interest in any
Receivable Asset or any Lock Box Account or other deposit account to which any
Collections of any Receivable are sent or assign any right to receive income in
respect thereof.
(b) Extension or Amendment of Receivables. Except as otherwise
permitted in Section 6.02 of the Purchase and Bank Agreements 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 any
Owner with respect thereto or hereunder; provided, however, that, except as so
permitted in Section 6.02 of the Purchase and Bank Agreements, in no event shall
the Seller amend or otherwise modify the terms of any 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 to the Purchase and Bank Agreements, 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 executed copies of Lock Box Agreements with respect to each new Lock
Box Bank and 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.
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(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, unless (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 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 trade names,
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
Buyer, necessary to reflect such change or use and to continue the perfection of
the ownership interests or security interests in the Receivable Assets, and (ii)
new Lock Box Agreements 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) of the Purchase and Bank Agreements, 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-1 to the Purchase and Bank Agreements, 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) Transactions with Affiliates. Enter into or permit to exist
any transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with the Buyer, other
than on terms that are fair and reasonable in the circumstances and that
reasonably approximate an arm's-length transaction between unaffiliated parties.
(i) Maxtor Agreement. (i) Cancel or terminate the Maxtor
Agreement or consent to or accept any cancellation or termination thereof, (ii)
amend or otherwise modify any term or condition of the Maxtor Agreement or give
any consent, waiver or approval thereunder, (iii) waive any default under or
breach of the Maxtor Agreement or (iv) take any other action under the Maxtor
Agreement not required by the terms thereof that would impair the value of any
Receivable Asset or the rights or interests of the Buyer thereunder or of the
Agent or any Owner or Indemnified Party thereunder.
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ARTICLE V
ADMINISTRATION AND COLLECTION
SECTION 5.01. Designation of Collection Agent. The Receivable
Assets shall be serviced, administered and collected by the Person designated as
the Collection Agent from time to time in accordance with Section 6.01 of the
Purchase and Bank Agreements, including any Person subcontracted to perform the
duties of Collection Agent under the Purchase and Bank Agreements from time to
time in accordance with Section 6.01 of the Purchase and Bank Agreements, and
shall be serviced, administered and collected by the Collection Agent in the
manner set forth in Section 6.02 of the Purchase and Bank Agreements, provided
that after a Collection Date, the Seller shall continue to act as Collection
Agent for the purposes of this Agreement unless otherwise agreed between the
Buyer and the Seller.
SECTION 5.02. Rights of the Buyer. The Buyer may notify at any
time after the occurrence and during the continuance of any Event of Termination
(or an event which with the passage of time or notice, or both, would constitute
an Event of Termination) under the Purchase and Bank Agreements, and at the
Seller's expense, the Obligors of Receivable Assets, or any of them, of the
ownership of Receivable Assets by the Buyer.
SECTION 5.03. Responsibilities of the Seller. Anything herein to
the contrary notwithstanding:
(a) The Seller shall perform all of its obligations under the
Contracts related to the Receivable Assets to the same extent as if Receivable
Assets had not been sold and the exercise by the Buyer of its rights hereunder
shall not relieve the Seller from such obligations or its obligations with
respect to any Receivable Assets or under the related Contracts; and
(b) Neither the Buyer nor any other Indemnified Party shall have
any obligation or liability with respect to any Receivable Assets or related
Contracts except for liabilities arising from its or their willful misconduct,
nor shall any of them be obligated to perform any of the obligations of the
Seller thereunder.
SECTION 5.04. Further Action Evidencing Purchases. (a) The Seller
agrees that from time to time, at its expense, it will, and will cause its
subsidiaries to, promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that the Buyer may reasonably request, in order to perfect, protect or more
fully evidence the purchase of Receivable Assets, or to enable any of them to
exercise and enforce any of their respective rights and remedies hereunder or
under any other Purchase Document. Without limiting the generality of the
foregoing, the Seller will, and will cause its subsidiaries to, upon the request
of the Buyer: (i) execute and file such financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as may be necessary or desirable, or as the Buyer may request, in order
to perfect, protect or evidence such purchase of Receivable Assets; and (ii) at
any time after the occurrence and during the continuance of any Event of
Insecurity (A) mark conspicuously each invoice evidencing each Receivable and
the related Contract with a legend, acceptable to the Buyer, evidencing that
such
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purchase of Receivable Assets has been made in accordance with this Agreement
and (B) mark its master data processing records evidencing such Receivables and
related Contracts with such legend.
(b) The Seller hereby authorizes the Buyer to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relating to all or any of the Receivable Assets now existing or
hereafter arising without the signature of the Seller where permitted by law. A
photocopy or other reproduction of this Agreement or any financing statement
covering all or any of the Receivable Assets shall be sufficient as a financing
statement where permitted by law.
(c) If the Seller fails to perform any agreement contained
herein, the Buyer or its designee may itself perform, or cause performance of,
such agreement, and the expenses of the Buyer or its designee incurred in
connection therewith shall be payable by the Seller under Section 6.01 or
Section 7.06, as applicable.
ARTICLE VI
INDEMNIFICATION
SECTION 6.01. Indemnities by the Seller. Without limiting any
other rights which the Buyer, any Affiliate thereof and their respective
permitted designees and assignees (each an "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 and expenses, but excluding
(a) any amount to the extent resulting from gross negligence or willful
misconduct on the part of such 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 in respect of any Receivable, any Contract, any Related Security or any
Additional Assigned Rights) (all of the foregoing, to the extent not so
excluded, being collectively referred to as "Indemnified Amounts"), 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) reliance on any representation or warranty or
statement made or deemed made by the Seller or the Company 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;
(ii) the failure by the Seller or any Affiliate thereof 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;
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(iii) the failure to vest in the Buyer a valid and
perfected ownership interest in each Receivable Asset; or the failure of the
Buyer to have obtained a first priority perfected ownership interest in the
Receivable Assets transferred or purported to be transferred to the Buyer under
this Agreement, free and clear of any Adverse Claim;
(iv) the failure of the Seller or any Affiliate thereof to
have filed, or any delay by the Seller or any Affiliate thereof, 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 Assets, at any time;
(v) any defense (other than discharge in bankruptcy or
other insolvency proceeding of the Obligor) of the Obligor to the payment of any
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;
(vi) any failure of the Seller or any Affiliate thereof,
as Collection Agent or otherwise, to perform its duties or obligations in
accordance with the provisions of Article V hereof or to perform its duties or
obligations under the Contracts;
(vii) 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;
(viii) 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 Sales or Purchases or the ownership of
Receivable Assets or in respect of any Receivable Asset, 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 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;
(ix) the failure to pay when due any taxes payable by the
Seller or any Affiliate thereof (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
(x) the commingling of Collections of Receivables at any
time with other funds.
Any amounts subject to the indemnification provisions of this
Section 6.01 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.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendments, Integration, Etc. No amendment or
waiver of any provision of this Agreement, and no consent to any departure by
the Seller herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Buyer and then such amendment, waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given. This Agreement contains a final and complete integration of all
prior expressions by the parties hereto with respect to the subject matter
hereof and shall constitute the entire agreement among the parties hereto with
respect to the subject matter hereof, superseding all prior oral or written
understandings.
SECTION 7.02. Notices, Etc. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including communication by telefax) and mailed, telefaxed or delivered, as to
each party hereto, at its address and telefax number set forth under its name on
the signature pages hereof or at such other address or telefax number as shall
be designated by such party in a written notice to the other parties hereto. All
such notices and communications shall, when mailed or telefaxed, be effective
when delivered by mail or when telefaxed, respectively.
SECTION 7.03. No Waiver; Remedies. No failure on the part of the
Buyer or any Indemnified Party to exercise, and no delay in exercising, any
right under any Purchase Document shall operate as a waiver thereof, nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 7.04. Binding Effect; Assignability. This Agreement shall
be binding upon the Seller and the Buyer and shall inure to the benefit of the
Seller, the Buyer and each Indemnified Party and their respective successors and
assigns, except that the Seller shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the Buyer.
This Agreement shall create and constitute the continuing obligation of the
parties hereto in accordance with its terms, and shall remain in full force and
effect until the Collection Date; provided, however, that rights and remedies
with respect to the indemnification provisions of Section 7.06 and Article VII
shall be continuing and shall survive any termination of this Agreement.
SECTION 7.05. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of California, except to
the extent that the perfection or the effect of non-perfection of the interests
of the Buyer, or remedies hereunder, in respect of the Receivable Assets are
governed by the laws of a jurisdiction other than the State of California.
SECTION 7.06. Confidentiality. Except to the extent otherwise
required by applicable law, each of the parties hereto agrees to maintain the
confidentiality of the Purchase Documents (and all drafts thereof) and not to
disclose any Purchase Document or such drafts to
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third parties (other than to its directors, officers, employees, accountants or
counsel); provided, however, that the Agreement may be disclosed to third
parties to the extent such disclosure is (i) required by any applicable
securities laws, (ii) made solely to persons who are legal counsel for the
purchaser or underwriter of such securities, (iii) limited in scope to the
provisions of Articles IV and VI, to the extent defined terms are used in
Articles IV and VI, such terms defined in Article I of this Agreement and the
Purchase and Bank Agreements and (iv) made pursuant to a written agreement of
confidentiality in form and substance reasonably satisfactory to the Agent.
SECTION 7.07. [INTENTIONALLY OMITTED]
SECTION 7.08. [INTENTIONALLY OMITTED]
SECTION 7.09. Execution in Counterparts; Severability. This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall constitute one and
the same agreement. In case any provision in or obligation under this Agreement
should be invalid, illegal or unenforceable in any jurisdiction,
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the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MAXTOR CORPORATION, as Seller
By: /s/ Paul J. Tufano
--------------------------------------
Title: Vice President and
Chief Financial Officer
510 Cottonwood Drive
Milpitas, CA 95035
Attention: Chief Financial Officer
Telephone No: 408/432-4180
Facsimile No.: 408/432-4480
MAXTOR RECEIVABLES
CORPORATION, as Buyer
By: /s/ Paul J. Tufano
--------------------------------------
Title: President
510 Cottonwood Drive
Milpitas, CA 95035
Attention: Raja Venkatesh
Telephone No: 408/432-4180
Facsimile No.: 408/432-4480
Agreed to and acknowledged by:
CITICORP NORTH AMERICA, INC.,
as Agent
By: /s/
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Title:
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<PAGE> 226
SCHEDULE 1
Discount Percentage
"Discount Percentage" means, for each Receivable Asset purchased
on any date, (a) for purposes of calculating the Purchase Price in respect of
the Closing Sale, 98.59% and (b) for purposes of calculating any Purchase Price
with respect to any Purchase Date, or the value of any Receivable Assets on any
date, a percentage equal to:
100% - (LD + PDRR)
where:
LD = the amount (expressed as a percentage) equal to the greater of
(i) one-fourth of one percent and (ii) 1.5 times the average of
the Loss-to-Liquidation Ratios for the three consecutive Fiscal
Months most recently ended; and
PDRR = the amount (expressed as a percentage) equal to:
TD x DR
-------
360
where:
TD = the "Turnover Days" ratio for the Receivable Assets
originated during the most recently ended Fiscal Month,
calculated by multiplying the fraction, the numerator of
which is the aggregate Outstanding Balance of all
Receivable Assets computed as of the last day of such
Fiscal Month and the denominator of which is the aggregate
amount of Collections (other than any deemed Collections)
received during such Fiscal Month with respect to
Receivable Assets, by 30;
DR = the rate of interest announced publicly by Citibank,
N.A. in New York, New York from time to time, as
Citibank's prime rate;
<PAGE> 227
Exhibit A to
Receivables
Contribution & Sal
as executed
NON-NEGOTIABLE TERM NOTE
Milpitas, California
April 8, 1998
FOR VALUE RECEIVED, the undersigned, MAXTOR RECEIVABLES CORPORATION, a
California corporation ("MRC"), promises to pay to MAXTOR CORPORATION, a
Delaware corporation ("Seller"), on the terms and subject to the conditions set
forth herein and in the Maxtor Sales Agreement referred to below, the aggregate
unpaid Purchase Price of all Receivable Assets purchased by MRC from Seller and
not paid in cash pursuant to such Maxtor Sales Agreement during the period from
(and including) the Closing Date (as defined in the Maxtor Sales Agreement) to
(but excluding) the Final Maturity Date referred to below.
1. Maxtor Sales Agreement. This Term Note is the Term Note described in,
and is subject to the terms and conditions set forth in, that certain
Receivables Contribution and Sale Agreement dated as of April 8, 1998 (as the
same may be amended, supplemented, amended and restated, or otherwise modified
from time to time in accordance with its terms, the "Maxtor Sales Agreement")
among MRC and Seller. Reference is hereby made to the Maxtor Sales Agreement for
a statement of certain other rights and obligations of MRC and Seller.
2. Definitions. Capitalized terms used but not defined herein have the
meanings assigned thereto in the Maxtor Sales Agreement. In addition, as used
herein, the following terms have the following meanings:
"Bankruptcy Proceedings" has the meaning set forth in Section
9(b) hereof.
"Base Rate" means the rate of interest publicly announced by
Citibank, N.A. in New York, New York from time to time as Citibank's base rate,
plus one percent (1%).
"Final Maturity Date" means the Settlement Date immediately
following the date that falls one hundred twenty-one (121) days after the
Termination Date of the Maxtor Sales Agreement.
"Senior Interests" means the obligations of MRC to the
Beneficiaries under the Purchase Documents to which MRC is a party.
"Senior Interest Holders" means the Beneficiaries.
<PAGE> 228
"Subordination Provisions" means, collectively, clauses (a)
through (m) of Section 7 hereof.
3. Interest.
(a) The aggregate unpaid principal amount from time to time
outstanding under this Term Note shall bear interest at a rate per annum equal
to the Base Rate; provided that notwithstanding anything in this Term Note to
the contrary, the foregoing interest rate shall be subject to the limitation
that such interest rate shall not at any time exceed the maximum rate permitted
by applicable law.
(b) Subject to the Subordination Provisions below, MRC shall pay
accrued interest on this Term Note on each Settlement Date.
(c) Interest accrued hereunder shall be computed for the actual
number of days elapsed on the basis of a year consisting of 365 or, where
appropriate, 366 days.
4. Principal.
(a) On the Closing Date, the principal amount outstanding under
this Term Note shall equal the product of (i) the aggregate Outstanding Balance
of the Adjusted Receivables and (ii) the Discount Percentage, as determined in
accordance with Section 2.02(b) of the Maxtor Sales Agreement.
(b) Prior to the Final Maturity Date, the principal amount of
this Term Note shall be increased on any Business Day if, and to the extent
that, the Purchase Price of Receivable Assets purchased by MRC on such Business
Day exceeds the aggregate amount of Collections received by MRC on such Business
Day and, subject to the Subordination Provisions below, shall be reduced if, and
to the extent that the Collections received by MRC on such Business Day exceed
the aggregate Purchase Price of Receivable Assets purchased by MRC on such
Business Day, in each case in accordance and as more specifically described in
Section 2.02(d) of the Maxtor Sales Agreement.
(c) The entire remaining unpaid principal amount of this Term
Note shall be paid on the Final Maturity Date.
(d) Subject to the Subordination Provisions set forth below, the
principal amount of and accrued interest on this Term Note may be prepaid, in
whole or in part, on any Business Day without premium or penalty.
5. Cash Payment Mechanics. All payments of principal and interest
hereunder are to be made in lawful money of the United States of America.
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6. Enforcement Expenses. In addition to and not in limitation of the
foregoing, but subject to the Subordination Provisions set forth below and to
any limitation imposed by applicable law, MRC agrees to pay all expenses,
including reasonable attorneys' fees and legal expenses, incurred by Seller in
seeking to collect any amounts payable hereunder which are not paid when due.
7. Subordination Provisions. MRC covenants and agrees, and Seller, by
its acceptance of this Term Note, likewise covenants and agrees on behalf of
itself and any holder of this Term Note, that the payment of the principal
amount of and interest on this Term Note is hereby expressly subordinated in
right of payment to the payment of the Senior Interests to the extent and in the
manner set forth in the following clauses of this Section 7:
(a) No payment or other distribution of MRC's assets of any kind
or character, whether in cash, securities, or other rights or property, shall be
made on account of this Term Note except to the extent such payment or other
distribution is (i) permitted under Section 5.03(k) of the Purchase and Bank
Agreements or (ii) made pursuant to Section 4 of this Term Note;
(b) In the event of any dissolution, winding up, liquidation,
readjustment, reorganization or other similar event relating to MRC, whether
voluntary or involuntary, partial or complete, and whether in bankruptcy,
insolvency or receivership proceedings, or upon an assignment for the benefit of
creditors, or any other marshalling of the assets and liabilities of MRC (such
proceedings being herein collectively called "Bankruptcy Proceedings"), the
Senior Interests shall first be paid in full before Seller shall be entitled to
receive and to retain any payment or distribution in respect of this Term Note;
and in any event any payment or distribution of any kind or character (whether
in cash or other property) in respect of this Term Note to which Seller would be
entitled except for this clause (b) shall be made directly to the Agent (for the
benefit of the Senior Interest Holders);
(c) Until such time as the Senior Interests shall have been paid
in full, if any Bankruptcy Proceeding is commenced by or against MRC, the Agent
is hereby irrevocably. authorized and empowered, in its own name, on behalf of
the Senior Interest Holders, or in the name of Seller, (i) to collect and
receive every payment or distribution referred to in clause (b) above and give
acquittance therefor and (ii) to file claims and proofs of claim and take such
other action (including, without limitation, voting with respect to any claims
of Seller relating to this Term Note) as it may deem necessary or advisable for
the exercise or enforcement of any of the rights or interests of the Senior
Interest Holders; and Seller agrees to take such action as the Agent may
reasonably request to collect every payment or distribution to which it is
entitled with respect to this Term Note for the account of the Senior Interest
Holders and to file appropriate claims and proofs of claim in respect thereof;
(d) If Seller receives any payment or other distribution of any
kind or character from MRC or from any other source whatsoever, in respect of
this Term Note, other than as expressly permitted by the terms of this Term
Note, such payment or other distribution shall be received in trust for the
Senior Interest Holders and shall be turned over by Seller to the
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Agent (for the benefit of the Senior Interest Holders) forthwith in the same
form as so received (with any necessary endorsement);
(e) Notwithstanding any payments or distributions received by the
Senior Interest Holders in respect of this Term Note, while any Bankruptcy
Proceedings are pending Seller shall not be subrogated to the then existing
rights of the Senior Interests Holders in respect of the Senior Interests until
the Senior Interests have been paid in full. If no Bankruptcy Proceedings are
pending, Seller shall only be entitled to exercise any subrogation rights that
it may acquire (by reason of a payment or distribution to the Senior Interest
Holders in respect of this Term Note) to the extent that any payment arising out
of the exercise of such rights would be permitted under Section 5.03(k) of the
Purchase and Bank Agreements;
(f) These Subordination Provisions are intended solely for the
purpose of defining the relative rights of Seller, on the one hand, and the
Senior Interest Holders on the other hand. Nothing contained in these
Subordination Provisions or elsewhere in this Term Note is intended to or shall
impair, as between MRC, its creditors (other than the Senior Interest Holders)
and Seller, MRC's obligation, which is unconditional and absolute, to pay Seller
the principal of and interest on this Term Note in accordance with the terms
hereof or to affect the relative rights of Seller and creditors of MRC (other
than the Senior Interest Holders);
(g) Seller shall not, until the Senior Interests have been paid
in full, (i) cancel, waive, forgive, transfer or assign, or commence legal
proceedings to enforce or collect, or subordinate to any obligation of MRC,
other than the Senior Interests, this Term Note or any rights in respect hereof
or (ii) convert this Term Note into an equity interest in MRC, unless Seller
shall have received the prior written consent of the Agent;
(h) Seller shall not institute against MRC any Bankruptcy
Proceeding so long as any Commercial Paper Notes issued by the Purchaser shall
be out g or there shall not have elapsed one year plus one day since the last
day on which any such Commercial Paper Notes shall have been outstanding. Seller
hereby agrees not to cause MRC to file a voluntary petition under the Federal
Bankruptcy Code or any other bankruptcy or insolvency laws unless, and only
unless, such filing has been authorized in accordance with MRC's constituent
documents, and by the Board of Directors of MRC which (as defined in such
constituent documents) have taken into consideration the interests of the
creditors of MRC, rather than solely the interests of the shareholders of MRC;
(i) If, at any time, any payment (in whole or in part) of any
Senior Interest is rescinded or must be restored or returned by a Senior
Interest Holder (whether in connection with Bankruptcy Proceedings or
otherwise), these Subordination Provisions shall continue to be effective or
shall be reinstated, as the case may be, as though such payment had not been
made;
(j) The Senior Interest Holders may, from time to time, without
notice to Seller, and without waiving any of its rights under these
Subordination Provisions, take any or all of the following actions (assuming
that such Senior Interest Holder is entitled to take any of the following
actions pursuant to the Purchase Document (other than this Term Note) or
pursuant to applicable law): (i) retain or obtain an interest in any property to
secure any of the Senior
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Interests; (ii) retain or obtain the obligations of any other obligors with
respect to any of the Senior Interests; (iii) extend or renew, alter or exchange
any of the Senior Interests, or release or compromise any obligation of any
nature with respect to any of the Senior Interests; (iv) amend, supplement,
amend and restate, or otherwise modify any Purchase Document; and (v) release
any security interest in, or surrender, release or permit any substitution or
exchange for all or any part of any rights or property securing any of the
Senior Interests;
(k) Seller hereby waives: (i) notice of acceptance of these
Subordination Provisions by any of the Senior Interest Holders; (ii) notice of
the existence, creation, nonpayment or non-performance of all or any of the
Senior Interests Holders; and (iii) all diligence in enforcement, collection or
protection of, or realization upon the interests of the Senior Interests, or any
thereof, or any security therefor;
(1) Each of the Senior Interest Holders may, from time to time,
on the terms and subject to the conditions set forth in the Purchase Documents
to which such Senior Interest Holders are party, but without notice to Seller,
assign or transfer any or all of the Senior Interests, or any interest therein;
and, notwithstanding any such assignment or transfer, such Senior Interests
shall be and remain Senior Interests for the purposes of these Subordination
Provisions, and every immediate and successive assignee or transferee of the
Senior Interests or of any interest of such assignee or transferee in the Senior
Interests shall be entitled to the benefits of these Subordination Provisions to
the same extent as if such assignee or transferee were the assignor or
transferor; and
(m) These Subordination Provisions are made for the benefit of
the Senior Interest Holders, and the Agent may proceed to enforce such
provisions on behalf of each of such Senior Interest Holders.
8. General. No failure or delay on the part of Seller in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power or right preclude any other or further
exercise thereof or to the exercise of any other power or right. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Term Note shall in any event be effective unless (i) the same shall be in
writing and signed and delivered by MRC, Seller and the Agent and (ii) all
consents required for such actions under the Purchase Documents shall have been
received by the appropriate Senior Interest Holders.
9. No Negotiation. This Term Note is not negotiable.
10. Captions. Section captions used in this Term Note are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Term Note.
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11. Governing Law. This Term Note shall be governed by, and construed in
accordance with, the laws of the State of California.
MAXTOR RECEIVABLES CORPORATION
By: /s/ Paul J. Tufano
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Title:
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<PAGE> 233
Exhibit B to the
Receivables
Contribution & Sale
Agreement
DEMAND NOTE
Milpitas, California
April 8, 1998
The undersigned, MAXTOR CORPORATION, a Delaware corporation ("Seller"),
for value received, promises to pay to the order of MAXTOR RECEIVABLES
CORPORATION, a California corporation ("MRC"), ON DEMAND, the aggregate unpaid
principal amount of all loans made by MRC to Seller (the "Seller Loans") as
shown in the records of the Collection Agent (as such term is defined in the
Maxtor Sales Agreement hereinafter referred to), together with accrued interest
on such amounts from time to time outstanding hereunder at the rate provided
below.
The unpaid principal amount of each Seller Loan from time to time
outstanding shall bear interest (which also shall be payable ON DEMAND) from
(and including) the date on which such Seller Loan was made to (but excluding)
the date on which such Seller Loan is paid in full at a rate per annum equal to
the rate of interest publicly announced by Citibank Bank, N.A. from time to time
as the Citibank base rate, plus 1%. Interest hereunder shall be computed for the
actual number of days elapsed on the basis of a year consisting of 365 or, where
appropriate, 366 days. Notwithstanding anything in this Demand Note to the
contrary, the foregoing interest rate shall be subject to the limitation that
such interest rate shall not at any time exceed the maximum rate permitted by
applicable law.
This Demand Note is one of the Demand Notes described in, and is subject
to the terms and conditions set forth in, that certain Receivables Contribution
and Sale Agreement, dated as of April 8 1998 (as the same may be amended,
supplemented, amended and restated or otherwise modified from time to time in
accordance with its terms, the "Maxtor Sales Agreement"), between MRC and
Seller. Reference is hereby made to the Maxtor Sales Agreement for a statement
of certain other rights and obligations of MRC. All capitalized terms used but
not otherwise defined herein have the meanings assigned thereto in the Maxtor
Sales Agreement.
All payments of principal and interest hereunder are to be made in
lawful money of the United States of America in same day funds to the account
designated from time to time by the Collection Agent.
<PAGE> 234
In addition to and not in limitation of the foregoing, Seller further
agrees, subject to any limitation imposed by applicable law, to pay all
expenses, including reasonable attorneys' fees and legal expenses, incurred by
the holder of this Demand Note in seeking to collect any amounts payable
hereunder which are not paid when due.
No failure or delay on the part of MRC or any other holder of this
Demand Note in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power or right
preclude any other or further exercise thereof or the exercise of any other
power or right. No notice to or demand on Seller shall entitle it to any notice
or demand in similar or other circumstances. No amendment, modification or
waiver of, or consent with respect to, any provision of this Demand Note shall
in any event be effective unless (i) the same shall be in writing and signed and
delivered by the holder hereof and (ii) all consents required for such action
under the Purchase Documents shall have been received by the appropriate
Persons.
THIS DEMAND NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA.
MAXTOR CORPORATION
By: /s/ Paul J. Tufano
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Title:
----------------------------
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<PAGE> 235
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS .............................................. 2
SECTION 1.01. Certain Defined Terms ...................... 2
SECTION 1.02. Other Terms ................................ 3
SECTION 1.03. Computation of Time Periods ................ 3
ARTICLE II SALE OF RECEIVABLES ..................................... 3
SECTION 2.01. Sale of Receivables ........................ 3
SECTION 2.02. Terms of Sales ............................. 4
SECTION 2.03. General Settlement Procedures .............. 6
SECTION 2.04. Payments and Computations, Etc ............. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES ......................... 7
SECTION 3.01. Representations and Warranties of the Seller 7
ARTICLE IV GENERAL COVENANTS OF THE SELLER ......................... 11
SECTION 4.01. Affirmative Covenants of the Seller ........ 11
SECTION 4.02. Reporting Requirements of the Seller ....... 14
SECTION 4.03. Negative Covenants of the Seller ........... 15
ARTICLE V ADMINISTRATION AND COLLECTION ............................ 17
SECTION 5.01. Designation of Collection Agent ............ 17
SECTION 5.02. Rights of the Buyer ........................ 17
SECTION 5.03 Responsibilities of the Seller ............. 17
SECTION 5.04. Further Action Evidencing Purchases ........ 17
ARTICLE VI INDEMNIFICATION ......................................... 18
SECTION 6.01. Indemnities by the Seller .................. 18
ARTICLE VII MISCELLANEOUS .......................................... 20
SECTION 7.01. Amendments, Integration, Etc ............... 20
SECTION 7.02. Notices, Etc ............................... 20
SECTION 7.03. No Waiver; Remedies ........................ 20
SECTION 7.04. Binding Effect; Assignability .............. 20
SECTION 7.05. Governing Law .............................. 20
SECTION 7.06. Confidentiality ............................ 20
SECTION 7.07. [INTENTIONALLY OMITTED] .................... 21
SECTION 7.08. [INTENTIONALLY OMITTED] .................... 21
SECTION 7.09. Execution in Counterparts; Severability .... 21
</TABLE>
SCHEDULES
Schedule 1 - Discount Percentage
<PAGE> 236
EXHIBITS
Exhibit A - Form of Term Note
Exhibit B - Form of Demand Note
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<PAGE> 237
Exhibit J
MAXTOR UNDERTAKING AGREEMENT
Dated as of April 8, 1998
among
MAXTOR CORPORATION,
as Parent,
and
CITICORP NORTH AMERICA, INC.
as Agent.
<PAGE> 238
MAXTOR UNDERTAKING AGREEMENT
MAXTOR UNDERTAKING AGREEMENT (this "Agreement"), dated as of
April 8, 1998, made by MAXTOR CORPORATION, a Delaware corporation (the
"Parent"), in favor of CITICORP NORTH AMERICA, INC., a Delaware corporation
("CNAI"), as Agent (the "Agent") for the Beneficiaries (as defined in the Second
Purchase Agreement referred to below).
PRELIMINARY STATEMENTS.
1. The Parent and its wholly owned subsidiary, Maxtor Receivables
Corporation, a California corporation (the "Seller"), have entered into a
Receivables Contribution and Sale Agreement (as amended, supplemented or
otherwise modified from time to time, the "First Purchase Agreement").
2. The Seller, the Parent, as Collection Agent, Corporate
Receivables Corporation, as Purchaser, CNAI, as Agent, and Bankers Trust
Company, as Trustee, have entered into a Receivables Purchase and Sale Agreement
(as amended, supplemented or otherwise modified from time to time, the "Second
Purchase Agreement", together with the First Purchase Agreement and the Bank
Agreement referred to in the Second Purchase Agreement, the "Purchase
Agreements"). Capitalized terms used herein and not herein defined, are used
herein as defined in the Purchase Agreements.
3. It is a condition precedent to the Purchase of any Purchased
Interest by the Purchaser pursuant to the Second Purchase Agreement, and the
"Purchase" of any "Purchased Interest" by any "Purchaser" pursuant to the Bank
Agreement, that the Parent shall have executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises, and the
substantial direct and indirect benefits to the Parent from the financing
arrangements contemplated by the Purchase Documents and other good and valuable
consideration, the receipt of which is hereby acknowledged, and in order to
induce the Purchaser to make Purchases, and the "Purchaser" to make "Purchases"
pursuant to the Bank Agreement, the Parent hereby agrees as follows:
SECTION 1. Unconditional Guarantee. The Parent hereby
unconditionally and irrevocably guarantees the punctual payment and performance
when due by the Seller and each Selling Affiliate, if any (the Seller and each
such Selling Affiliate are, collectively, the "Obligated Parties"), of all of
such Obligated Party's respective covenants, agreements and undertakings now or
hereafter existing under each Purchase Document to which such Obligated Party is
a party (whether for Collections actually received or deemed to have been
received, yield or indemnity payments, fees, expenses or otherwise, such
covenants, agreements, and other obligations being the "Guaranteed
Obligations"), and agrees to pay any and all expenses (including counsel fees
and expenses) incurred by the Agent in enforcing any rights under this
Agreement. Without limiting the generality of the foregoing, the Parent's
liability shall extend to all amounts which constitute part of the Guaranteed
Obligations and would be owed by an Obligated Party but for the fact that such
Guaranteed Obligations are unenforceable or not
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<PAGE> 239
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving such Obligated Party. In the event that any Obligated Party
shall fail in any manner whatsoever to perform or observe any of its Guaranteed
Obligations when the same shall be required to be performed, then the Parent
will itself duly and punctually perform or observe, or cause to be duly and
punctually performed and observed, such Guaranteed Obligation, and it shall not
be a condition to the accrual of the obligation of the Parent hereunder to
perform or observe any Guaranteed Obligation (or to cause the same to be
performed or observed) that the Agent shall have first made any request of or
demand upon or given any notice to any Obligated Party or its respective
successors or assigns, or have instituted any action or proceedings against any
Obligated Party or its respective successors or assigns in respect thereof.
SECTION 2. Guaranty Absolute. The Parent guarantees that the
Guaranteed Obligations will be paid and performed strictly in accordance with
the terms of the Purchase Documents or any document delivered in connection
therewith, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of any Beneficiary
with respect thereto. The obligations of the Parent under this Agreement are
independent of the Guaranteed Obligations and a separate action or actions may
be brought and prosecuted against the Parent to enforce this Agreement,
irrespective of whether any action is brought against any Obligated Party or
whether any Obligated Party is joined in any such action or actions. The
liability of the Parent under this Agreement shall be irrevocable, absolute and
unconditional irrespective of, and the Parent hereby irrevocably waives any
defenses it may now or hereafter have in any way relating to, any or all of the
following:
(a) any lack of validity or enforceability of any Purchase
Document or any agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of,
or in any other term of, all or any of the Guaranteed Obligations under the
Purchase Documents, or any other amendment or waiver of or any consent to
departure from any Purchase Document;
(c) any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Guaranteed Obligations;
(d) any manner of application of collateral, or proceeds
thereof, to all or any of the Guaranteed Obligations, or any manner of sale or
other disposition of any collateral for all or any of the Guaranteed Obligations
or any other obligations of any Obligated Party under the Purchase Documents;
(e) any change, restructuring or termination of the
corporate structure or existence of any Obligated Party or any of its
subsidiaries;
(f) any failure of any Beneficiary to disclose to the
Parent any information relating to the financial condition, operations,
properties or prospects of any Obligated Party now or in the future known to any
Beneficiary (the Parent waiving any duty on the part of any Beneficiary to
disclose such information); or
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<PAGE> 240
(g) any other circumstance (including, without limitation,
any statute of limitations) or any existence of or reliance on any
representation by any Beneficiary that might otherwise constitute a defense
available to, or a discharge of, the Parent or any other guarantor or surety.
This Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time (x) any payment in connection with any of the Guaranteed
Obligations is rescinded or must otherwise be returned by the Agent or any
Beneficiary, or (y) any performance or satisfaction of any Guaranteed Obligation
is rescinded or otherwise invalidated, upon the insolvency, bankruptcy or
reorganization of any party to any Purchase Document, all as though payment had
not been made or as though such Guaranteed Obligation had not been performed or
satisfied.
SECTION 3. Waivers and Acknowledgments. (a) The Parent hereby
waives promptness, diligence, notice of acceptance and any other notice with
respect to any of the Guaranteed Obligations and this Agreement and any
requirement that any Beneficiary protect, secure, perfect or insure any Lien or
any property subject thereto or exhaust any right or take any action against any
Obligated Party or any other Person or any collateral.
(b) The Parent hereby waives any right to revoke this
Agreement, and acknowledges that this Agreement is continuing in nature and
applies to all Guaranteed Obligations, whether existing now or in the future.
SECTION 4. Subrogation. The Parent will not exercise any rights
that it may now or hereafter acquire against any Obligated Party that arise from
the existence, payment, performance or enforcement of the Parent's obligations
under this Agreement or any other Purchase Document, including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution
or indemnification and any right to participate in any claim or remedy of any
Beneficiary against any Obligated Party or any collateral, whether or not such
claim, remedy or right arises in equity or under contract, statute or common
law, including, without limitation, the right to take or receive from any
Obligated Party, directly or indirectly, in cash or other property or by set-off
or in any other manner, payment or security on account of such claim, remedy or
right, unless and until all amounts in connection with the Guaranteed
Obligations, all amounts payable under this Agreement shall have been paid in
full and all other amounts payable by each Obligated Party to all Beneficiaries
under the Purchase Documents shall have been paid in full. If any amount shall
be paid to the Parent in violation of the preceding sentence at any time prior
to the later of (i) the payment in full of the Guaranteed Obligations and all
other amounts payable under this Agreement and all amounts payable to the
Beneficiaries under the Purchase Documents and (ii) the termination of this
Agreement, such amount shall be held in trust for the benefit of the
Beneficiaries and shall forthwith be paid to the Agent to be credited and
applied to the Guaranteed Obligations, whether matured or unmatured, in
accordance with the terms of the Purchase Documents or to be held by the Agent
as collateral security for any Guaranteed Obligations payable under this
Agreement thereafter arising.
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<PAGE> 241
SECTION 5. Representations and Warranties. The Parent hereby
represents and warrants as follows:
(a) The Parent is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction indicated at
the beginning of this Agreement.
(b) The execution, delivery and performance by the Parent
of each Purchase Document to be delivered by it hereunder and thereunder and the
transactions contemplated hereby and thereby, and the Parent's use of the
proceeds of Purchases, are within the Parent's corporate powers, have been duly
authorized by all necessary corporate action, do not contravene (i) the Parent's
charter or by-laws or (ii) law or any Contract or other contractual restriction
binding on or affecting the Parent, and do not result in or require the creation
of any Adverse Claim (other than pursuant hereto) upon or with respect to any of
its properties; and no transaction contemplated hereby requires compliance with
any bulk sales act or similar law.
(c) No authorization or approval or other action by, and
no notice to or filing with, any governmental authority or regulatory body or
other Person is required for the due execution, delivery and performance by the
Parent of any Purchase Document to be delivered by it hereunder or thereunder,
or for the perfection of or the exercise by the Agent or any Owner of its rights
and remedies under each such Purchase Document, except for (i) the filings of
the financing statements referred to in Article III of the Purchase Agreements,
all of which, on or prior to the Closing Date, will have been duly made and be
in full force and effect, and (ii) upon any Person's becoming a Selling
Affiliate under the Purchase Agreements, the filings of the financing statements
required pursuant to the definition of the term "Selling Affiliate" in the
Purchase Agreements, all of which, on or prior to the date such Person shall
become a Selling Affiliate, will have been duly made and be in full force and
effect.
(d) Each Purchase Document is, or when delivered hereunder
or thereunder will be, the legal, valid and binding obligation of the Parent,
enforceable against the Parent in accordance with its respective terms. Each
Assignment, when delivered under the Purchase Agreements, will evidence the
transfer to the Purchaser of legal and equitable title to, and ownership of, an
undivided percentage ownership interest in the Receivable Assets, and a valid
and perfected first priority security interest therein.
(e) The consolidated balance sheets of the Parent and its
subsidiaries as at September 27, 1997 and the related consolidated statements of
income and cash flows of the Parent and its subsidiaries for the nine months
then ended, copies of which have been furnished to the Agent, fairly present,
subject to year-end audit adjustments, the consolidated financial condition of
the Parent and its subsidiaries as at such date and the consolidated results of
the operations of the Parent and its subsidiaries for the period ended on such
date, all in accordance with generally accepted accounting principles
consistently applied, and, since September 27, 1997, there has been no material
adverse change in such condition or operations except as and to the extent
projected or otherwise disclosed in the Parent's quarterly report on Form 10-Q
for the fiscal quarter ending September 27, 1997 or in Schedule V hereto.
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(f) There is no pending or threatened action or proceeding
affecting the Parent or any of its subsidiaries before any court, governmental
agency or arbitrator which may materially adversely affect (i) the
collectibility of the Subject Receivables or the ability of the Parent, any
Selling Affiliate or the Collection Agent to collect Subject Receivables or (ii)
the ability of the Parent or any Selling Affiliate to perform its obligations
under any Purchase Document to be delivered by it hereunder or thereunder, or
which purports to affect the legality, validity or enforceability of any
Purchase Document.
(g) No proceeds of any Purchase will be used to purchase
or carry any margin stock (within the meaning of Regulation U issued by the
Board of Governors of the Federal Reserve System).
(h) Immediately prior to the time of the initial creation
of an interest under the First Purchase Agreement in any Receivable Asset, the
Parent is the legal and beneficial owner of the Receivable Assets (as defined in
the First Purchase Agreement), free and clear of any Adverse Claim except as
created by such agreement or to the extent created by the Agent or the Purchaser
or any Owner. On the date of the initial creation of an interest in each Subject
Receivable under the Second Purchase Agreement or any Selling Affiliate
Receivables Contribution and Sale Agreement, such Subject Receivable (except as
otherwise set forth on the Daily Report) constitutes an Eligible Receivable or
an Included Foreign Receivable. Upon each sale, the Parent or the respective
Selling Affiliate shall transfer to the Seller (and the Seller shall acquire) a
valid and perfected ownership interest in each Receivable Asset, free and clear
of any Adverse Claim except as created by the First Purchase Agreement or any
Selling Affiliate Receivables Contribution and Sale Agreement, or to the extent
created by the Agent or the Purchaser or any Owner. No effective financing
statement or other instrument similarly in effect covering any Receivable Asset
or any Lock Box Account or other deposit account, to the extent any Collections
are from time to time deposited therein, is on file in any recording office,
except those filed in favor of the Agent relating to the Purchase Documents, or
in favor of the Seller and the Agent under the First Purchase Agreement or any
Selling Affiliate Receivables Contribution and Sale Agreement or those listing
the Parent or the respective Selling Affiliate as secured party and the
applicable Obligor as debtor.
(i) Each Purchaser Report and Daily Report (in each case
if prepared by the Parent or any Selling Affiliate or any Affiliate of any
thereof, or to the extent that information contained therein is supplied by the
Parent or any Selling Affiliate or any Affiliate of any thereof), notice or
other written item of information, exhibit, financial statement, document, book,
record or report furnished or to be furnished at any time by the Parent or any
Selling Affiliate to the Agent or any Owner in each case in connection with the
Purchase Agreements is or will be accurate in all material respects as of its
date or (except as otherwise disclosed in writing to the Agent or such Owner, as
the case may be, at such time) as of the date so furnished, and as of such
relevant date no such document contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary in
order to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
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(j) The chief place of business and chief executive office
of the Parent and the office where the Parent keeps its records concerning the
Receivable Assets are located at the address specified in Section 7.02 of the
First Purchase Agreement (or at such other locations, notified to the Agent in
accordance with Section 4.01(f) of the First Purchase Agreement, in
jurisdictions where all action required by Section 5.04 of the First Purchase
Agreement has been taken and completed).
(k) The names and addresses of all the Lock Box Banks,
together with the account numbers of the Lock Box Accounts at such Lock Box
Banks, are specified in Schedule I to the Purchase Agreements (or at such other
Lock Box Banks and/or with such other Lock Box Accounts as have been notified to
the Agent and for which Lock Box Agreements have been executed in accordance
with Section 6.06(b) of the Purchase Agreements).
(l) Neither the Parent nor any Affiliate (of the type set
forth in clause (i)(x) of the definition of the term "Affiliate") of the Parent
has any direct or indirect ownership or other financial interest in the Agent,
the Purchaser or any Bank.
(m) Each purchase of Receivable Assets under the First
Purchase Agreement and each Selling Affiliate Receivables Contribution and Sale
Agreement and each purchase of a Purchased Interest under the Purchase
Agreements will constitute (i) a "current transaction" within the meaning of
Section 3(a)(3) of the Securities Act of 1933, as amended, and (ii) a purchase
or other acquisition of notes, drafts, acceptances, open accounts receivable or
other obligations representing part or all of the sales price of merchandise,
insurance or services within the meaning of Section 3(c)(5) of the Investment
Company Act of 1940, as amended.
(n) None of the Receivable Assets is evidenced by any
"instrument" or "chattel paper" within the meaning of the UCC in effect in the
State of California other than any Receivable (i) which shall have become a
Defaulted Receivable after the date on which such Receivable became a Receivable
under the First Purchase Agreement or as transferred under the Repurchase
Agreement and (ii) in connection with which Defaulted Receivable the Parent as
Collection Agent shall have accepted an instrument, which instrument shall have
been duly endorsed and delivered to the Agent by the Parent, to maximize the
Collections thereof as contemplated by Section 6.02(c) of the Purchase
Agreements.
(o) No ERISA Event has occurred or is reasonably expected
to occur with respect to any Plan that has resulted or is reasonably likely to
result in a material liability of the Parent.
(p) The aggregate Insufficiency under all Plans does not
exceed $10,000,000.
(q) Neither the Parent nor any ERISA Affiliate of any
thereof has incurred or is reasonably expected to incur any material Withdrawal
Liability (that has not been satisfied) to any Multiemployer Plan.
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(r) Neither the Parent nor any ERISA Affiliate of any
thereof has been notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or has been terminated, within the
meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected
to be in reorganization or to be terminated, within the meaning of Title IV of
ERISA.
(s) The Parent and its subsidiaries have no material
liability with respect to "expected postretirement benefit obligations" within
the meaning of Statement of Financial Accounting Standards No. 106.
(t) The Parent has not changed its name during the four
month period prior to the date hereof, and has no tradenames, fictitious names,
assumed names or "doing business as" names.
(u) With respect to all Receivable Assets (other than the
Initial Capital Contribution (as defined in the First Purchase Agreement)), the
Seller has purchased such Receivable Assets from the Parent in exchange for
payment (made by the Seller to the Parent in accordance with the provisions of
the First Purchase Agreement) in an amount which constitutes fair consideration
and approximates fair market value for such Receivable Assets 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. No such sale has been made for or on account of an antecedent debt owed
by the Parent or to the Seller, and no such sale or contribution is or may be
voidable or subject to avoidance under any section of the Federal Bankruptcy
Code.
(v) The Parent has not sold, assigned, transferred,
pledged or hypothecated any interest in any Receivable Assets to any Person
other than as contemplated by the First Purchase Agreement and any Selling
Affiliate Contribution and Sale Agreement.
(w) The Parent has complied with the Credit and Collection
Policy in all material respects and since the date of this Agreement there has
been no change in the Credit and Collection Policy except as permitted under the
Purchase Documents.
(x) The obligations of the Parent and under the First
Purchase Agreement to make payments in respect of fees and indemnities payable
to any Beneficiary rank at least equally with indebtedness of the Parent which
is not contractually subordinated.
(y) The Parent has not granted any Person other than the
Agent dominion and control of any Lock Box Account, or the right to take
dominion and control over any Lock Box Account at a future time or upon the
occurrence of a future event.
(z) The Parent has filed, or caused to be filed or be
included in, all tax reports and returns (federal, state, local and foreign), if
any, required to be filed by it and paid, or caused to be paid, all amounts of
taxes, including interest and penalties required to be paid by it, except for
such taxes (i) as are being contested in good faith by proper proceedings and
(ii) against which adequate reserves shall have been established in accordance
with and to the
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extent required by GAAP, but only so long as the proceedings referred. to in
clause (i) above could not subject the Agent or any other Indemnified Party to
any civil or criminal penalty or liability or involve any material risk of the
loss, sale or forfeiture of any property, rights or interests covered hereunder
or under any other Purchase Document.
(aa) There are no Adverse Claims (including, without
limitation, liens or retained security titles of conditional vendors, but
excluding any Adverse Claims created under the First Purchase Agreement) of any
nature whatsoever on the Receivable Assets. The Parent is not a party to any
contract, agreement, lease or instrument the performance of which, either
unconditionally or upon the happening of an event, will result in or require the
creation of any Adverse Claim on the Receivable Assets or otherwise result in a
violation of this Agreement or any other Purchase Document, other than any
Adverse Claims created pursuant to any Purchase Document.
(bb) (i) The Parent is not a party to any indenture, loan
or credit agreement or any lease or other agreement or instrument or subject to
any organizational restriction that could reasonably be expected to have, and no
provision of applicable law or governmental regulation could reasonably be
expected to have, a material adverse effect on the condition (financial or
otherwise), business, operations, properties or prospects of the Parent, or may
reasonably be expected to have such an effect on the ability of the Parent to
carry out its obligations hereunder or under any other Purchase Document, and
(ii) neither the Parent nor, to the best of the knowledge of the Parent, any
other party is in default under or with respect to this Agreement or any other
contract, agreement, lease or other instrument to which the Parent is a party
and which is material to the Parent's condition (financial or otherwise),
business, operations, properties or prospects, and neither the Parent nor any
such other party has delivered or received any notice of default thereunder.
(cc) The Lock Box Banks are the only institutions holding
Lock Box Accounts for the receipt of payments from all Obligors, and such
Obligors have been instructed or, upon the creation of Receivables owed by them,
will be instructed to make payments only to Lock Box Accounts, and such
instructions have not been modified or revoked by the Parent and are in full
force and effect.
(dd) There are no conditions precedent to the
effectiveness of this Agreement that have not been satisfied or waived.
SECTION 6. Covenants. (a) Affirmative Covenants of the Parent.
Until the Collection Date, the Parent will, unless the Seller and the Agent
shall otherwise consent in writing:
(i) 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 Receivable Assets.
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(ii) 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 under the Purchase Documents or in and to the Receivable Assets, or
the ability of the Parent or the Collection Agent to perform its obligations
under any Purchase Document or the ability of the Parent to perform its
obligations under the Contracts.
(iii) Audits. (A) 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 Parent's expense, (1) 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 Parent, its Affiliates or the agents of the Parent or
its Affiliates relating to the Receivable Assets and the Lock Box Account
activity and (2) to visit the offices and properties of the Parent for the
purpose of examining such materials described in clause (1) above, and to
discuss matters relating to the Receivable Assets and the Lock Box Account
activity or the Parent's or the Selling Affiliates' performance under the
Purchase Documents or under the Contracts with any of the officers or employees
of the Parent having knowledge of such matters, and (B) within 90 days after the
end of each fiscal year of the Parent, at the Parent'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 Receivable Assets, the Credit and Collection
Policies, the Lock Box Account activity and the performance by the Parent 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 to the Purchase Agreements.
(iv) 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).
(v) 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.
(vi) 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 Receivable Assets at the address of the Parent
referred to in Section 3.01(j) of the First Purchase
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Agreement 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 5.04 of the First Purchase Agreement shall have
been taken.
(vii) 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.
(viii) Collections. (A) Instruct, or cause to be
instructed, all Obligors to make all payments in respect of Subject Receivables
directly to a Lock Box Account,
(B) if the Parent shall otherwise 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,
(C) if the Parent shall be deemed to receive any
Collections pursuant to Section 2.03 of the First Purchase Agreement, deposit
the Owners' respective allocable shares of such Collections directly to the
Agent's Account (1) if and so long as no Event of Insecurity shall have occurred
and be continuing, on the day of such receipt or deemed receipt, and (2) 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
(D) upon the occurrence of any Event of
Insecurity, cause the Lock Box Banks to immediately sweep Collections from the
Lock Box Accounts to the Concentration Account.
(ix) Maintenance of Separate Existence. Do all things
necessary to maintain its corporate existence separate and apart from the
Seller, including, without limitation, (A) maintaining proper corporate records
and books of account separate from those of the Seller; (B) maintaining its
assets, funds and transactions separate from those of the Seller, reflecting
such assets and transactions in financial statements separate and distinct from
those of the Seller, and evidencing such assets, funds and transactions by
appropriate entries in the books and records referred to in clause (A) above,
and providing for its own operating expenses and liabilities from its own assets
and funds other than certain expenses and liabilities relating to basic
corporate overhead which may be allocated between itself and the Seller; (C)
holding such appropriate meetings or obtaining such appropriate consents of its
Board of Directors as are necessary to authorize all the Parent's corporate
actions required by law to be authorized by the Board of Directors, keeping
minutes of such meetings and of meetings of its stockholders and observing all
other customary corporate formalities (and any successor Parent not a
corporation shall observe similar procedures in accordance with its governing
documents
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and applicable law); (D) at all times entering into its contracts and otherwise
holding itself out to the public under the Parent's own name as a legal entity
separate and distinct from the Seller; and (E) conducting all transactions and
dealings between the Parent and the Seller on an arm's-length basis.
(x) Compliance with Opinion Assumptions and
Constituent Documents. Without limiting the generality of Section 6(a)(ix)
above, maintain in place all policies and procedures, and take and continue to
take all actions, described in the assumptions as to facts set forth in, and
forming the basis of, the opinions set forth in the opinion delivered to the
Agent in substantially the form of the opinion delivered pursuant to Section
3.01(l) of the Purchase Agreements, and comply with, and cause compliance with,
the provisions of the constituent documents of the Seller delivered to the Agent
pursuant to Section 3.01 of the Purchase Agreements as the same may, from time
to time, be amended, modified or otherwise supplemented with the prior written
consent of the Agent.
(xi) Purchase of Subject Receivables from the Parent.
With respect to all Receivable Assets outstanding from time to time (other than
the Initial Capital Contribution), sell such Receivable Assets to the Seller in
exchange for payment (made in accordance with the First Purchase Agreement) in
an amount which constitutes fair consideration and approximates fair market
value for such Receivable Asset 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.
(xii) Purchase Documents. 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 each Purchase
Document to which it is party, maintain each such Purchase Document in full
force and effect, enforce each such Purchase Document in accordance with its
respective 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 each such Purchase
Document such demands and requests for information and reports or for action as
the Parent is entitled to make thereunder and as may be from time to time
reasonably requested by the Agent.
(xiii) Subsidiaries. Cause each of its subsidiaries
to comply with all provisions of the Purchase Documents to which each such
subsidiary is a party.
(b) Reporting Requirements of the Parent. Until the
Collection Date, the Parent will, unless the Seller and the Agent shall
otherwise consent in writing, furnish to the Agent and the Trustee:
(i) as soon as available and in any event within 45
days after the end of each of the first three quarters of each fiscal year of
the Parent, a consolidated balance sheet of the Parent and its subsidiaries as
of the end of such quarter and consolidated statements of income and of cash
flows of the Parent 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 Parent;
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(ii) as soon as available and in any event within 90
days after the end of each fiscal year of the Parent, a copy of the Parent's
annual audit report containing a consolidated balance sheet of the Parent 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 Coopers & Lybrand or other independent public accountants acceptable to
the Agent;
(iii) as soon as possible and in any event within
five days after the Parent's chief executive officer, chief operating officer,
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 Parent setting forth details of such Event of
Termination or Incipient Event of Termination and the action which the Parent
has taken and proposes to take with respect thereto;
(iv) promptly and in any event within five Business
Days after the Parent's receipt or delivery thereof, copies of all notices,
requests, reports, certificates and other information and documents delivered or
received by the Parent from time to time under or in connection with the First
Purchase Agreement and this Agreement;
(v) 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 Receivable Assets on such day; and
(vi) such other information, documents, records or
reports respecting the Receivable Assets or the condition or operations,
financial or otherwise, of the Parent or any of its subsidiaries as the Agent
may from time to time reasonably request.
(c) Negative Covenants of the Parent. Until the Collection
Date, the Parent will not, without the written consent of the Seller and the
Agent:
(i) Sales, Liens, Etc. Except as otherwise provided
in the Purchase Documents, 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 any Owner) upon or with respect to, the Parent's undivided interest
in any Receivable Asset or any Lock Box Account or other deposit account to
which any Collections of any Receivable are sent or assign any right to receive
income in respect thereof.
(ii) Extension or Amendment of Receivables. Except as
otherwise permitted in Section 6.02 of the Purchase Agreements if the Parent is
the Collection Agent, (A) extend the terms of any Receivable, or (B) 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 Parent's standard sales
programs, if in any such case such amendment modification or waiver would be
reasonably
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likely to impair the collectibility of any Receivable or materially adversely
affect the rights or interests of the Agent or the Purchaser or any Owner with
respect thereto or hereunder; provided, however, that, except as so permitted in
Section 6.02 of the Purchase Agreements, in no event shall the Parent amend or
otherwise modify the terms of any Subject Receivable unless the Agent shall have
otherwise notified the Parent.
(iii) 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.
(iv) 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 to the Purchase Agreements, 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 executed copies of Lock Box Agreements with respect to each new
Lock Box Bank and each new Lock Box Account, as applicable.
(v) 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.
(vi) 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, unless (A)
immediately after giving effect to such merger or consolidation, no Event of
Termination or Incipient Event of Termination shall occur and be continuing and
(B) the corporation into which the Parent shall be merged or consolidated or
which is otherwise formed pursuant to such merger or consolidation shall assume
the Parent'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 Section 3.01 of the Purchase Agreements, 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.
(vii) 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 Parent
delivers to the Agent (A) UCC financing statements, executed by the Parent and,
if applicable, the Seller, necessary to reflect such change or use and to
continue the perfection of the ownership interests or security interests in the
Receivable Assets, (B) new Lock Box Agreements executed by the Parent, necessary
to reflect such change and to continue to enable the Agent to exercise its
rights contained in Section 6.03(a) of the Purchase Agreements, and (C) in the
case of any such change in its structure, a favorable opinion of Morrison &
Foerster LLP or other counsel of the Parent reasonably satisfactory to the
Agent, in substantially
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the form of Exhibit E-1 to the Purchase Agreements, giving effect to such
change, in each case of clauses (A), (B) and (C) together with such other
documents and instruments as the Agent may reasonably request in connection
therewith.
(viii) Transactions with Affiliates. Enter into or
permit to exist any transaction (including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any service) with
the Seller, other than on terms that are fair and reasonable in the
circumstances and that reasonably approximate an arm's-length transaction
between unaffiliated parties.
(ix) Purchase Documents. (A) Cancel or terminate any
Purchase Document to which it is party or consent to or accept any cancellation
or termination thereof, (B) amend or otherwise modify any term or condition of
any Purchase Document to which it is party or give any consent, waiver or
approval thereunder, (C) waive any default under or breach of any Purchase
Document to which it is party or (D) take any other action under any Purchase
Document to which it is party not required by the terms thereof that would
impair the value of any Receivable Asset or the rights or interests of the
Seller thereunder or of the Agent or any Owner or Indemnified Party thereunder.
(x) Insolvency Event. Commence or institute, or join
any other Person in commencing or instituting, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any federal or state bankruptcy or similar law, against the Seller or any
successor to the Seller which becomes a party to any of the Purchase Documents.
(xi) Seller Organizational Documents. Amend, modify
or otherwise change the articles of incorporation or bylaws of the Seller in a
manner that adversely affects the Seller's existence as a special purpose
corporation.
(xii) Seller Merger, Etc. Not permit, suffer or cause
the Seller to enter into any transaction of merger or consolidation, liquidation
or dissolution, or permit, suffer or cause the Seller to acquire by purchase or
otherwise all or substantially all of the business or assets of, or the stock or
other evidence of beneficial ownership of any Person.
SECTION 7. Amendments, Etc. (a) This Agreement may be amended
from time to time by the Parent and the Agent, without the consent of any Owner
(i) to cure any ambiguity, (ii) to correct or supplement any provision herein
which may be inconsistent with any other provision herein or (iii) to add any
other provisions with respect to matters or questions arising under this
Agreement which are not inconsistent with the provisions of this Agreement.
(b) This Agreement may be amended from time to time by the
Parent and the Agent, with the consent of a majority of the Owners, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Owners; provided, however, that no such amendment shall (i) reduce in any
manner the amount of, or delay the timing of, any payment to
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be made hereunder without the consent of each such Owner or (ii) reduce the
aforesaid percentage required to consent to any such amendment without the
consent of each such Owner.
(c) Promptly after the execution of any such amendment or
consent (other than an amendment pursuant to clause (a)), the Agent shall
furnish written notification of the substance of such amendment to each Owner.
(d) It shall not be necessary for the consent of the
Owners to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent shall approve the substance thereof. The manner of
obtaining such consents and of evidencing the authorization of the execution
thereof by the Owners shall be subject to such reasonable requirements as the
Agent may prescribe.
SECTION 8. Addresses for Notices. All notices and other
communications provided for hereunder shall, unless otherwise stated herein, be
in writing (including communication by telefax) and mailed, telefaxed or
delivered, as to each party hereto, at its address and telefax number set forth
below or at such other address or telefax number as shall be designated by such
party in a written notice to the other parties hereto. All such notices and
communications shall, when mailed or telefaxed, be effective when delivered by
mail or when telefaxed, respectively.
If to the Parent,
Maxtor Corporation
510 Cottonwood Drive
Milpitas, California 95035
Fax: (408) 432-4480
Attn: Raja Venkatesh, Treasurer
If to the Agent,
Citicorp North America, Inc.
450 Mamaroneck Avenue,
Harrison, New York 10528
Fax: (914) 899-7015
Attn: Corporate Asset Funding Department
SECTION 9. No Waiver; Remedies. No failure on the part of any
Beneficiary to exercise, and no delay in exercising, any right under any
Purchase Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any Purchase Document preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 10. Indemnification; Costs, Expenses and Taxes; No
Proceedings. (a) Without limitation on any other obligations of the Parent or
remedies of the Agent or the Beneficiaries under this Agreement, the Parent
shall, to the fullest extent permitted by law,
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<PAGE> 253
indemnify, defend and save and hold harmless the Agent and each Beneficiary from
and against, and shall pay on demand, any and all losses, liabilities, damages,
costs, expenses and charges (including the reasonable fees and disbursements of
the Agent or such Beneficiary's legal counsel) suffered or incurred by the Agent
or such Beneficiary as a result of any failure of any Guaranteed Obligations to
be the legal, valid and binding obligations of the Parent enforceable against
the Parent in accordance with their terms.
(b) The Parent agrees to pay on demand all costs and
expenses in connection with the preparation, execution, delivery, periodic
auditing, modification and amendment of the Purchase Documents and the other
documents to be delivered thereunder and hereunder, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Agent, with respect thereto and with respect to advising the Agent as to its
rights and remedies under the Purchase Documents and the other documents to be
delivered hereunder and thereunder. The Parent further agrees to pay on demand
all costs and expenses, if any (including, without limitation, reasonable
counsel fees and expenses), in connection with the enforcement (whether through
negotiations, legal proceedings or otherwise) of the Purchase Documents and the
other documents to be delivered hereunder and thereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 10(b).
(c) In addition, the Parent shall pay when due (i) any and
all commissions of placement agents and dealers in respect of the Commercial
Paper Notes of the Purchaser issued to fund the Purchase or maintenance of any
Purchased Interest, (ii) any and all costs and expenses of any issuing agent or
other Person responsible for the administration of the Purchaser's Commercial
Paper Note program in connection with the preparation, completion, issuance,
delivery or payment of Commercial Paper Notes issued to fund the Purchase or
maintenance of any Purchased Interest, and (iii) any and all stamp and other
taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing, recording or searching in respect of, or
enforcement, of the Purchase Documents and the other documents to be delivered
hereunder, and agrees to save each Indemnified Party harmless from and against
any and all liabilities with respect. to or resulting from any delay in paying
or omission to pay such taxes and fees (including, without limitation, sales
taxes, shipping charges or other similar taxes and charges due on merchandise or
services sold by the Parent or any Affiliate thereof to Obligors), provided that
the Agent will, to the extent, if at all, received from each Owner, pay (or
reimburse the Parent for) all property, excise or similar taxes and any other
taxes imposed by reason of ownership of Receivables, but only to the extent of
the percentage interest therein represented by the Purchased Interests.
(d) The Parent also shall pay on demand all other costs,
expenses and taxes (excluding income taxes) incurred by each Owner or any
general or limited partner or shareholder of each such Owner ("Other Costs"),
including, without limitation, (i) any and all costs relating to all
arrangements contemplated hereby with any of the Lock-Box Banks, (ii) the costs
of auditing the Purchaser's books by certified public accountants and of rating
each Owner's Commercial Paper Notes by independent financial rating agencies,
the cost of issuing each Owner's Commercial Paper Notes, (iii) the taxes
(excluding income taxes) resulting from
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<PAGE> 254
each Owner's operations, (iv) the reasonable fees and disbursements of counsel
for each Owner with respect to advising as to rights and remedies under Purchase
Documents or the agreements and documents entered into in connection therewith,
the enforcement of the Purchase Documents or the agreements and documents
entered into in connection therewith, or advising as to matters relating to each
Owner's operations or (v) advising the Purchaser or any general or limited
partner or shareholder of the Purchaser as to the issuance of the Purchaser's
Commercial Paper Notes and acting in connection with such issuance.
(e) The Parent hereby agrees that it will not institute
against the Buyer any proceeding of the type referred to in Section 7.01(g) of
the Purchase and Bank Agreements so long as any Commercial Paper Notes issued by
the Purchaser shall be outstanding or there shall not have elapsed one year plus
one day since the last day on which any such Commercial Paper Notes shall have
been outstanding. The Parent hereby agrees not to cause the Buyer to file a
voluntary petition under the Federal Bankruptcy Code or any other bankruptcy or
insolvency laws unless, and only unless, such filing has been authorized in
accordance with the Buyer's constituent documents, and by the Board of Directors
of the Buyer which (as defined in such constituent documents) have taken into
consideration the interests of the creditors of the Buyer, rather than solely
the interests of the members of the Buyer.
SECTION 11. Receivables Contribution and Sale Agreement. (a) The
Parent acknowledges notice of and consents to (i) the execution, delivery and
performance by the Seller at each of the Purchase Documents to which it is party
including, without limitation, the assignment by the Seller of all of its right,
title and interest in, to and under, each of the Purchase Documents to which it
is party, and (ii) the irrevocable appointment of the Agent as the Sellers
attorney-in-fact pursuant to the Purchase Documents.
(b) The Parent agrees that:
(i) the Agent shall be entitled to exercise any and
all rights and remedies of the Seller against the Parent under the Purchase
Documents in accordance with the terms thereof.
(ii) the right to make any request, consent, waiver,
amendment, direction, determination or similar action which is vested in the
Seller under any Purchase Document to which the Parent is party, has been
assigned to the Agent by the Seller and no such request, consent, waiver,
amendment, direction, determination or similar action shall be effect unless
given or made by the Agent.
SECTION 11A Continuing Agreement.. This Agreement is a continuing
guaranty and shall (a) remain in full force and effect until (i) the later of
the payment in fall in cash of the Guaranteed Obligations and all other amounts
payable under this Agreement, (ii) the payment of all other amounts payable
under this Agreement and the other Purchase Documents and (iii) the Collection
Date, (b) be binding upon the Parent, its successors and assigns and (c) inure
to the benefit of, and be enforceable by, the Agent and its respective
successors and permitted transferees and assigns.
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<PAGE> 255
SECTION 12. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of California.
SECTION 13. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by the different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Delivery of an executed counterpart of a signature page of this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 14. Waiver of Jury Trial. The Parent hereby irrevocably
waives any right to a trial by jury in any action, proceeding or counterclaim
(whether based on contract, tort or otherwise) arising out of or relating to
this Agreement or any other Purchase Document or any amendment, instrument,
document or agreement delivered or which may in the future be delivered in
connection herewith or therewith or arising from any course of conduct, course
of dealing, statements (whether verbal or written), actions of any of the
parties hereto or any other relationship existing in connection with this
Agreement or any other Purchase Document, and agrees that any such action or
proceeding shall be tried before a court and not before a jury.
IN WITNESS WHEREOF, the Parent has caused this Agreement to be
duly executed and delivered by its respective officers thereunto duly authorized
as of the date first above written.
MAXTOR CORPORATION
By /s/ Paul J. Tufano
-------------------------------
Name: Paul J. Tufano
Title: Vice President and
Chief Financial Officer
AGREED AND ACCEPTED:
CITICORP NORTH AMERICA, INC.,
as Agent
By /s/ Authorized Signatory
-------------------------------
Name:
Title:
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<PAGE> 256
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Unconditional Guarantee ................................... 1
SECTION 2. Guaranty Absolute ......................................... 2
SECTION 3. Waivers and Acknowledgments ............................... 3
SECTION 4. Subrogation ............................................... 3
SECTION 5. Representations and Warranties ............................ 4
SECTION 6. Covenants ................................................. 8
SECTION 7. Amendments, Etc ........................................... 14
SECTION 8. Addresses for Notices ..................................... 15
SECTION 9. No Waiver; Remedies ....................................... 15
SECTION 10. Indemnification; Costs, Expenses and Taxes; No Proceedings 15
SECTION 11. Receivables Contribution and Sale Agreement .............. 17
SECTION 11A. Continuing Agreement .................................... 18
SECTION 12. Governing Law ............................................ 18
SECTION 13. Execution in Counterparts ................................ 18
SECTION 14. Waiver of Jury Trial ..................................... 18
</TABLE>
-i-
<PAGE> 257
Exhibit K
Dated as of April 8, 1998
Corporate Receivables Corporation
450 Mamaroneck Avenue
Harrison, New York 10528
U. S. A.
Citicorp North America, Inc.,
individually and as Agent
450 Mamaroneck Avenue
Harrison, New York 10528
U.S.A.
Maxtor Corporation
Ladies and Gentlemen:
We, Hyundai Electronics Industries Co., Ltd., a company duly
incorporated and validly existing under the laws of the Republic of Korea, refer
to each of (i) the Receivables Purchase and Sale Agreement dated as of April 8,
1998 (such Agreement as it may be amended, supplemented or otherwise modified
from time to time being the "Purchaser Agreement") among Maxtor Corporation
("Maxtor"), Maxtor Receivables Corporation (the "Seller"), Corporate Receivables
Corporation (together with its respective successors and assigns from time to
time, the "Purchaser") and Citicorp North America, Inc. ("CNAI"), as agent for
the Purchaser and the other Owners thereunder (the "Agent") and (ii) the
Receivables Purchase and Sale Agreement dated as of April 8, 1998 (such
Agreement as it may be amended, supplemented or otherwise modified from time to
time being the "Bank Agreement", and together with the Purchaser Agreement,
collectively the "Facilities", the terms defined therein being used herein as
therein defined) among Maxtor. the Seller, and the other financial institutions
party thereto from time to time as "Banks", and CNAI, individually and as agent
(CNAI in its capacity as agent thereunder and under the Purchasers Agreement
being the "Agent"). It is a condition precedent to the initial Purchase under
either of the Facilities that we shall have executed and delivered this letter.
We hereby irrevocably and unconditionally agree as follows:
1. We represent and warrant that we currently own, directly or
indirectly and beneficially at least 51 % of the issued share capital of Maxtor.
1
<PAGE> 258
2. We will at all times take all measures necessary or desirable to keep
the billing, credit and collection standards, policies and procedures of the
Collection Agent, so long as it is Maxtor or any of our other affiliates.
unchanged from those set forth in the Facilities and in the Credit and
Collection Policies referred to in the Facilities, and we will cause (a) the
Collection Agent, so long as it is Maxtor or any of our other affiliates, at all
times to duly perform and comply with all of its obligations as Collection Agent
under or in connection with the Facilities, and (b) Maxtor at all times to duly
perform and comply with all of its obligations as Seller under or in connection
with the Facilities. If the Collection Agent (so long as it is Maxtor or any of
our other affiliates) or the Seller fails to perform any of its obligations as
specified in either of the Facilities (excluding (i) the obligation of the
Collection Agent or the Seller to pay to the Agent or any Owner, by deposit to
the Agent's Account or otherwise, Collections received from Obligors from time
to time by the Collection Agent or the Seller, (ii) any obligation of the Seller
under clause (ii) of Section 10.01 of such Facility to indemnify the Indemnified
Parties in connection with any representation or warranty by the Seller under
Section 4.01(e) of such Facility which shall have been incorrect in any material
respect when made, and (iii) any interest accruing under Section 2.05 of such
Facility in connection with such Collections or such indemnification to the
extent not paid by the Collection Agent or the Seller, as applicable, when due
under such Facility), we will, upon notice to us by the Agent or demand for
performance under this letter, duly promptly perform such obligation as though
we were the Collection Agent or the Seller, as applicable, under such Facility.
3. We will promptly upon demand pay to the Agent the amount of any and
all reasonable expenses, including legal fees and expenses, and taxes thereon,
which the Agent may incur in connection with the exercise or enforcement of any
of its rights hereunder.
4. No amendment or waiver of any provision of this letter, and no
consent to any departure by us herefrom, shall be effective unless in writing
and signed by the Agent, and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
5. This letter shall be governed by, and construed in accordance with,
the laws of the State of California, U.S.A. We irrevocably submit to the
jurisdiction of any New York State or Federal court sitting in New York City,
and any California State or Federal court sitting in the City of San Jose,
respectively, and any appellate court from any thereof in any action or
proceeding arising out of or relating to this letter. We hereby irrevocably
waive the defense of an inconvenient forum to the maintenance of such action or
proceeding. Service of copies of the summons and complaint and any other process
which may be served in any such action or proceeding may be made by mailing (by
international courier service) or delivering a copy of such process to us at our
address (and to the attention of the officer) set forth below or by any other
method permitted by law.
6. Any amount to be paid by us hereunder will be paid in United States
dollars in the United States in same day funds, and in the event any judgment by
any court results in any such amount being paid by us in any currency other than
United States dollars, we will be liable to you for the amount of any related
conversion deficiency.
2
<PAGE> 259
7. We hereby agree that, to the extent that we or any of our agents have
acquired or hereafter may acquire any right of immunity, whether characterized
as sovereign immunity or otherwise, from any legal proceedings, regardless of
the jurisdiction, to enforce this letter or any of our obligations to you
hereunder, including without limitation immunity from service of process,
immunity from jurisdiction or judgment and immunity from execution of a
judgment, we hereby expressly and irrevocably waive any such immunity.
Yours faithfully,
HYUNDAI ELECTRONICS INDUSTRIES CO., LTD.
By: /s/
-------------------------------
Title: Director
Address:
6th Floor Hyundai Building
140-2, Kyo-dong, Chongro-ku
Seoul, Korea
Attention: Representative Director
3
<PAGE> 260
LOCK BOX AGREEMENT
March 26, 1998
CoreStates Bank, N.A.
1345 Chestnut Street
Philadelphia PA 19101-76 1 8
Attention: Jeffrey Levy
Ladies and Gentlemen:
Reference is made to Maxtor Corporation account no. 0109-7086 into which certain
monies, instruments and other properties are deposited from time to time (the
"Lock Box Account") maintained with CoreStates ("you" or the "Bank") by Maxtor
Corporation (the "Customer"). The Customer and certain of its affiliates have
entered into a transaction pursuant to which the Lock Box Account and the other
Account Collateral (as defined below) are to be transferred to Citicorp North
America, Inc., as Agent (the "Agent") for the Beneficiaries referred to in the
Receivables Purchase and Sale Agreement (the "Receivables Purchase and Sale
Agreement"), dated as of April 8, 1998, among Maxtor Receivables Corporation, as
Seller, Maxtor Corporation, as Collection Agent, Corporate Receivables
Corporation, as Purchaser (the "Purchaser"), Citicorp North America, Inc., as
Agent for the Purchaser and the Owners referred to therein, and Bankers Trust
Company, as Trustee (the "Receivables Transaction"). It is a condition precedent
to the Receivables Transaction that you execute and deliver this Lock Box
Agreement. Terms defined in the Receivables Purchase and Sale Agreement, unless
otherwise defined herein, are used herein as therein defined.
<PAGE> 261
Pursuant to the Purchase Documents, the Customer and certain of its affiliates
have granted to the Agent, for the benefit of the Beneficiaries, a security
interest in certain property of the Customer, including, among other things, the
following (the "Account Collateral"): the Lock Box Account, all funds held
therein and all certificates and instruments, if any, from time to time
representing or evidencing such Lock Box Account, all interest, dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for nay or al of the then
existing Account Collateral and all proceeds of any and all of the foregoing
Account Collateral and, to the extent not otherwise included, all (i) payments
under insurance (whether or not the Agent is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Account Collateral and (ii) cash
on deposit in the Lock Box Account. It is a condition to the continued
maintenance of the Lock Box Account with you that you agree to this Lock Box
Agreement.
You hereby agree that the Agent, for the benefit of the Beneficiaries, possesses
all right, title and interest in and to the Lock Box Account and all Account
Collateral now or hereinafter on deposit in the Lock Box Account and further
agrees that all funds in the Lock Box Account shall be transferred to the Agent
on behalf of the Beneficiaries in accordance with the instructions set forth
herein. You also agree that the Agent shall have full irrevocable right, power
and authority to demand, collect, withdraw, receive or sue for all amounts now
or hereafter on deposit in the Lock Box Account and at its discretion to take
any other action which it deems necessary or appropriate to protect its
interest, on behalf of the Beneficiaries, in the Lock Box Account. Except as
provided in paragraph (i) below, the Lock Box Account shall not be subject to
deductions, set-off, banker's liens or any other right in favor of any person or
entity other than the Agent or the Beneficiaries.
By signing this Lock Box Agreement you acknowledge that, as of the date hereof,
you have received no notice of any other pledge or assignment of the Lock Box
Account. Further, you hereby agree with the Agent as follows:
(a) Notwithstanding anything to the contrary in the Lock Box Account and all or
any other agreement relating to the Lock Box Account, the Lock Box Account is
and will be, subject to the terms and conditions of the Purchase Documents,
maintained solely for the benefit of the Agent, will be entitled "Citicorp North
America, Inc., as Agent, Re: Maxtor Corporation" and will be subject to written
instructions only from an authorized officer of the Agent. The Lock Box Account
and all of the Account Collateral shall be in the sole dominion and control of
the Agent, and the Customer shall have no control thereover.
(b) You will collect mail from the Lock Box Account on each Business Day at
times which coincide with the delivery of mail thereto.
(c) You will follow your usual operating procedures for the handling of any
remittance received in the Lock Box Account that contains restrictive
endorsements, irregularities (such as a variance between the written and
numerical amounts), updated or postdated items, missing signatures, incorrect
payees, etc.
<PAGE> 262
(d) You will endorse and process all eligible checks and other remittance items
not covered by paragraph (c) and deposit such checks and remittance items in the
Lock Box Account. You will mail all checks returned unpaid because of
uncollected or insufficient funds under appropriate advice to the Customer (with
a copy of the notification of return to the Agent). The Customer shall indemnify
you for the uncollected amounts of any such items.
(e) You will mail all checks returned unpaid because of uncollected or
insufficient funds under appropriate advice to the Customer (with a copy of the
notification of return to the Agent). The Customer shall indemnify you of the
uncollected amounts of any such items.
(f) You will maintain a record of all checks and other remittance items received
in the Lock Box Account and, in addition to providing the Customer with
photostats, vouchers, enclosures, etc. of such checks and remittance items on a
daily basis, furnish to the Agent a monthly statement of the Lock Box Account
to: Citicorp North America, Inc., as Agent, 399 Park Avenue, New York, New York
10043. Attention: Bob DiLeo, with a copy to the Customer.
(g) You will transfer, in available funds, on each Business Day, all funds on
deposit in the Lock Box Account to the following account (the "Concentration
Account"):
ABA Number: 021001033
Bankers Trust Company
Four Albany Street
New York, New York 10006
Account Name: BTCO f/a/o Maxtor
Concentration Account
Account Number: 01-419-647
Reference: Maxtor Concentration Account
Attention: Structured Finance Team/Lou Bodi
or to such other account as the Agent may from time to time designated in
writing.
(h) Subject to paragraph (i) below, all transfers referred to in paragraph (g)
above shall be made by the undersigned irrespective of, and without deduction
for, any counterclaims, defense, recoupment or set-off and shall be final, and
the undersigned will not seek to recover from the Agent for any reason any such
payment once made.
(i) All customary service charges and fees with respect to the Lock Box Account
shall be debited to the Lock Box Account, together with any items deposited to
the Lock Box Account which are returned unpaid. In the event insufficient funds
remain in such Lock Box Account to cover such customary service charges and
fees, the Customer shall pay and indemnify you for the amounts of such customary
service charges and fees.
(j) The Agent shall be entitled to exercise any and all rights of the Customer
in respect of the Lock Box Account in accordance with the terms of the Purchase
Documents, and the undersigned shall comply in all respects with such exercise.
<PAGE> 263
This Lock Box Agreement shall be binding upon and shall inure to the benefit of
you, the Customer, the Agent, the Beneficiaries and their respective successors,
transferees and assigns. You may terminate the Lock Box Agreement only upon
thirty days prior written notice to the Customer and the Agent. The Agent may
terminate this Lock Box Agreement upon ten days prior written notice to you and
the Customer. Upon such termination you shall close the Lock Box Account and
transfer all funds in the Lock Box Account to the Concentration Account. After
any such termination, you shall nonetheless remain obligated promptly to
transfer to the Concentration Account or to the Agent all funds and other
property received in respect of the Lock Box Account.
This Lock Box Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement. Delivery of an executed counterpart
of a signature page to this Lock Box Agreement by telecopier shall be effective
as delivery of a manually executed counterpart of this Lock Box Agreement.
This Lock Box Agreement supersedes all prior agreements, oral or written, with
respect to the subject matte hereof and may not be amended, modified or
supplemented except by a written signed and agreed upon by the Agent, the
Customer and you.
Upon acceptance of this Lock Box Agreement it will be the valid and binding
obligation of the Customer, the Agent and you, in accordance with its terms.
This Lock Box Agreement shall be governed by, and construed in accordance with,
the law of the State of New York.
Very truly yours,
MAXTOR CORPORATION
By: /s/: Glenn T. Haubl
-------------------------------
Name: Glenn T. Haubl
Title: Assistant Treasurer
<PAGE> 264
CITICORP NORTH AMERICA, INC., as Agent
By: /s/
-------------------------------
Name:
Title:
Acknowledged and agreed to as of
the date first above written:
CORESTATE BANK, N.A.
By: /s/ Jeffrey Levy
-------------------------------
Name: Jeffrey Levy
Title: Vice President
<PAGE> 265
EXHIBIT C
FORM OF LOCK BOX AGREEMENT
[Date]
[Bank]
[Address]
Attention:
Ladies and Gentlemen:
Reference is made to [lock box][deposit] account no. _______________
into which certain monies, instruments and other properties are deposited from
time to time (the "Lock Box Account") maintained with [Bank] ("you" or the
"Bank") by Maxtor Corporation and [Maxtor Receivables Corporation] (together
being the "Customer"). The Customer and certain of its affiliates have entered
into a transaction pursuant to which the Lock Box Account and the other Account
Collateral (as defined below) are to be transferred to Citicorp North America,
Inc., as Agent (the "Agent") for the Beneficiaries referred to in the
Receivables Purchase and Sale Agreement (the "Receivables Purchase and Sale
Agreement"), dated as of March _, 1998, among [Maxtor Receivables Corporation,
as Seller, Maxtor Corporation, as Collection Agent, Corporate Receivables
Corporation, as Purchaser (the "Purchaser"), Citicorp North America, Inc., as
Agent for the Purchaser and the Owners referred to therein, and Bankers Trust
Company, as Trustee (the "Receivables Transaction"). It is a condition precedent
to the Receivables Transaction that you execute and deliver this Lock Box
Agreement. Terms defined in the Receivables Purchase and Sale Agreement, unless
otherwise defined herein, are used herein as therein defined.
Pursuant to the Purchase Documents, the Customer and certain of its
affiliates have granted to the Agent, for the benefit of the Beneficiaries, a
security interest in certain property of the Customer, including, among other
things, the following (the "Account Collateral"): the Lock Box Account, all
funds held therein and all certificates and instruments, if any, from time to
time representing or evidencing such Lock Box Account, all interest, dividends,
cash, instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the then
existing Account Collateral and all proceeds of any and all of the foregoing
Account Collateral and, to the extent not otherwise included, all (i) payments
under insurance (whether or not the Agent is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Account Collateral and (ii) cash.
It is a condition to the continued maintenance of the Lock Box Account with you
that you agree to this Lock Box Agreement.
<PAGE> 266
You hereby agree that the Agent, for the benefit of the Beneficiaries,
possesses all right, title and interest in and to the Lock Box Account and all
Account Collateral now or hereinafter on deposit in the Lock Box Account and
further agree that all funds in the Lock Box Account shall be transferred to the
Agent on behalf of the Beneficiaries in accordance with the instructions set
forth herein. You also agree that the Agent shall have full and irrevocable
right, power and authority to demand, collect, withdraw, receive or sue for all
amounts now or hereafter on deposit in the Lock Box Account and at its
discretion to take any other action which it deems necessary or appropriate to
protect its interest, on behalf of the Beneficiaries, in the Lock Box Account.
Except as provided in paragraph (i) below, the Lock Box Account shall not be
subject to deductions, set-off, banker's liens or any other right in favor of
any person or entity other than the Agent or the Beneficiaries.
By signing this Lock Box Agreement you acknowledge that, as of the date
hereof, you have received no notice of any other pledge or assignment of the
Lock Box Account. Further, you hereby agree with the Agent as follows:
(a) Notwithstanding anything to the contrary in the Lock Box Account and all or
any other agreement relating to the Lock Box Account, the Lock Box Account is
and will be, subject to the terms and conditions of the Purchase Documents,
maintained solely for the benefit of the Agent, will be entitled "Citicorp North
America, Inc., as Agent, Re: Maxtor Corporation" and will be subject to written
instructions only from an authorized officer of the Agent. The Lock Box Account
and all of the Account Collateral shall be in the sole dominion and control of
the Agent, and the Customer shall have no control thereover.
(b) You will collect mail from the Lock Box Account on each Business Day at
times which coincide with the delivery of mail thereto.
(c) You will follow your usual operating procedures for the handling of any
remittance received in the Lock Box Account that contains restrictive
endorsements, irregularities (such as a variance between the written and
numerical amounts), undated or postdated items, missing signatures, incorrect
payees, etc.
(d) You will endorse and process all eligible checks and other remittance items
not covered by paragraph (c) and deposit such checks and remittance items in the
Lock Box Account.
(e) You will mail all checks returned unpaid because of uncollected or
insufficient funds under appropriate advice to the Customer (with a copy of the
notification of return to the Agent). The Customer shall indemnify you for the
uncollected amounts of any such items.
(f) You will maintain a record of all checks and other remittance items received
in the Lock Box Account and, in addition to providing the Customer with
photostats, vouchers, enclosures, etc. of such checks and remittance items on a
daily basis, furnish to the Agent a monthly statement of the Lock Box Account
to: Citicorp North America, Inc., as Agent, 399 Park Avenue, New York, New York
10043, Attention: _______________, with a copy to the Customer.
<PAGE> 267
(g) You will transfer, in available funds, on each Business Day, all funds on
deposit in the Lock Box Account to the following account (the "Concentration
Account"):
ABA Number: ______________
Bankers Trust Company
Four Albany Street
New York, New York 10006
Account Name: BTCO f/a/o Maxtor
Concentration Account
Account Number: _______________
Reference: Maxtor Concentration Account
Attention: Structured Finance Team
or to such other account as the Agent may from time to time designate in
writing.
(h) Subject to paragraph (i) below, all transfers referred to in paragraph (g)
above shall be made by the undersigned irrespective of, and without deduction
for, any counterclaim, defense, recoupment or set-off and shall be final, and
the undersigned will not seek to recover from the Agent for any reason any such
payment once made.
(i) All customary service charges and fees with respect to the Lock Box Account
shall be debited to the Lock Box Account, together with any items deposited to
the Lock Box Account which are returned unpaid. In the event insufficient funds
remain in such Lock Box Account to cover such customary service charges and
fees, the Customer shall pay and indemnify you for the amounts of such customary
service charges and fees.
(j) The Agent shall be entitled to exercise any and all rights of the Customer
in respect of the Lock Box Account in accordance with the terms of the Purchase
Documents, and the undersigned shall comply in all respects with such exercise.
This Lock Box Agreement shall be binding upon and shall inure to the
benefit of you, the Customer, the Agent, the Beneficiaries and their respective
successors, transferees and assigns. You may terminate the Lock Box Agreement
only upon sixty days' prior written notice to the Customer and the Agent. The
Agent may terminate this Lock Box Agreement upon ten days' prior written notice
to you and the Customer. Upon such termination you shall close the Lock Box
Account and transfer all funds in the Lock Box Account to the Concentration
Account. After any such termination, you shall nonetheless remain obligated
promptly to transfer to the Concentration Account or to the Agent all funds and
other property received in respect of the Lock Box Account.
This Lock Box Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement. Delivery of an executed counterpart
of a signature page to this Lock Box Agreement by telecopier shall be effective
as delivery of a manually executed counterpart of this Lock Box Agreement.
<PAGE> 268
This Lock Box Agreement supersedes all prior agreements, oral or
written, with respect to the subject matter hereof and may not be amended,
modified or supplemented except by a writing signed and agreed upon by the
Agent, the Customer and you.
Upon acceptance of this Lock Box Agreement it will be the valid and
binding obligation of the Customer, the Agent and you, in accordance with its
terms.
This Lock Box Agreement shall be governed by, and construed in
accordance with, the law of the State of New York.
Very truly yours,
MAXTOR CORPORATION
By: /s/ Authorized Signatory
-------------------------------
Name:
Title:
[MAXTOR RECEIVALBES CORPORATION]
By: /s/ Authorized Signatory
-------------------------------
Name:
Title:
CITICORP NORTH AMERICA, INC., as Agent
By: /s/ Jeffrey Levy
-------------------------------
Name: Jeffrey Levy
Title: Vice President
Acknowledged and agreed to as of the date first above written:
[BANK]
By: /s/ Authorized Signatory
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.46
INTERCOMPANY LOAN AGREEMENT
THIS INTERCOMPANY LOAN AGREEMENT (the "Agreement") is amended as of this
10th day of April, 1998, 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 meets 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:
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 shall be in multiples of $10,000.
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.
<PAGE> 2
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 $1,000,000.
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.
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.
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.
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<PAGE> 3
(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 the 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.
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
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<PAGE> 4
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.
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<PAGE> 5
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 forth above.
HYUNDAI ELECTRONICS AMERICA MAXTOR CORPORATION
By: /s/ Authorized Signatory By: /s/ Paul J. Tufano
--------------------------------- -----------------------------------
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<PAGE> 6
Its: V.P. Finance and CFO Its:
--------------------------------- -----------------------------------
Address: 3101 North First Street Address: 510 Cottonwood Drive
San Jose, CA 95134 Milpitas, CA 95035
Telecopier No: Telecopier No:
(408) 232-8101 (408) 432-4480
-6-
<PAGE> 7
Exhibit A
PROMISSORY NOTE
$100,000,000 April 10, 1998
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 (US $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, 1999, 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 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
$1,000,000.
4. Loan Agreement. This Note is the Note referred to in, and is entitled
to the benefits of, that certain Intercompany Loan Agreement dated April 10,
1998 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
<PAGE> 8
dishonor, protest and notice of protest, and shall pay all costs of collection
when incurred, including, without limitation, reasonable attorneys' 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 Attorneys' 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 attorneys' 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
-8-
<PAGE> 9
By:
-------------------------------------
Its:
------------------------------------
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<PAGE> 1
EXHIBIT 10.47
DOCUMENTARY ACCEPTANCE CREDIT AGREEMENT AND
SECURITY AGREEMENT FOR ELIGIBLE BANKERS' ACCEPTANCES
TO: Bank of America National Trust and Savings Association
Address: ______________________________________________________
______________________________________________________
__________________________________________, California
In consideration of BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (hereinafter called "Bank") accepting, at Bank's option in each
instance, for the account of the Undersigned, such drafts as the Undersigned may
from time to time designate, the Undersigned agrees as follows:
1. On or before the last business day before the maturity of any draft
accepted by Bank under this Agreement, or upon demand pursuant to paragraph 11,
the Undersigned will pay to Bank the amount of such draft and the amount of all
charges and expenses that Bank may have paid or incurred relating to each such
draft. On the date of acceptance the Undersigned will pay Bank's acceptance
commission and, if Bank discounts the draft, Bank's discount fee. Commissions
and fees will be charged in each case at Bank's prevailing rate on the date of
acceptance and discount and may be deducted from the proceeds of the draft. All
payments under this Agreement by the Undersigned shall be made at the above
address in immediately available funds, and Bank may, in its discretion and if
not otherwise paid as provided herein, charge such payments against any fund
held by Bank for the account of the Undersigned. Each draft accepted by Bank
under this Agreement shall mature on a day when banks are open to business in
New York and California.
2. Each draft which the Undersigned requests Bank to accept under this
Agreement will: (a) arise out of one or more transactions involving the
importation or exportation of goods; (b) arise out of one or more transactions
involving the domestic shipment of goods within the United States; or (c) at the
time of acceptance be secured by warehouse receipts or similar documents
conveying or securing title and covering readily marketable staples. Upon
acceptance by Bank of any such draft the Undersigned will deliver to Bank, in
form and substance satisfactory to Bank purpose statements describing the goods
and indicating their origin and destination or location, or other evidence of
the underlying transaction. Upon acceptance by Bank of any draft under this
Agreement, the Undersigned will deliver to Bank, or if so directed by Bank, for
Bank's account to such correspondent as Bank may designate, (i) in the case of a
draft described in (a) or (b) above, all shipping and other documents relating
to the goods involved and (ii) in the case of a draft described in (c) above,
the warehouse receipts or other documents covering the goods involved. Any
warehouse receipts and other documents must be satisfactory to Bank, must be
issued by someone other than the drawer of the related drafts and must cover
readily marketable staples whose market value is greater than the face amount of
the related acceptances. The Undersigned certifies as to each draft offered for
acceptance by Bank
1
<PAGE> 2
that no other source is financing the transaction and that the Undersigned will
not seek any additional financing for that transaction.
3. The Undersigned will promptly procure all import, export and other
licenses essential to the import, export, shipping or warehousing of all goods
covered by any documents at any time held by or for Bank, will comply with all
foreign and domestic governmental regulations in relation thereto; will keep
said goods covered by insurance satisfactory to Bank issued by insurers
acceptable to Bank and assign the policies or certificates of insurance to Bank,
and will pay all taxes and other charges or expenses upon or with regard to said
property.
4. As security for all Obligations (defined in Paragraph 11), the
Undersigned hereby grants to Bank a security interest in:
(a) all shipping documents, warehouse receipts, policies or
certificates of insurance and other documents accompanying or relating to drafts
accepted under this Agreement;
(b) all goods covered by any such documents;
(c) all proceeds of the foregoing; and
(d) all property of the Undersigned now or at any time hereafter
in Bank's possession or control or held by any third person for the account of
Bank. The Undersigned hereby authorizes Bank at any time at its option to apply
to the Obligations whether or not then due any and all monies now or hereafter
on deposit with Bank or to hold any such monies as security for the Obligations.
5. On demand of Bank, and without demand if the market value of the
Undersigned's property securing the Obligations declines in value, the
Undersigned will grant to Bank a security interest in such additional property
as Bank may require as further security for the Obligations or, at Bank's
option, will prepay the Obligations to the extent required by Bank.
6. Upon Bank's request, the Undersigned will perform such acts as Bank
may from time to time deem necessary to create or perfect any security interest
provided for under this Agreement.
7. Neither Bank nor any correspondent of Bank shall be responsible for
the existence, character, quality, quantity, condition, packing, or delivery of
any property covered by this Agreement or for the validity, sufficiency, or
genuineness of any documents or any endorsements or any notations thereon or for
the time, place, manner or order in which shipment is made, or in respect of any
insurance, or for any action or inaction any shipper, any of Bank's
correspondents, or any other party involved in any transaction covered hereby.
8. At the Undersigned's option, Bank shall hold drafts presigned by the
Undersigned and is hereby authorized to complete such drafts in accordance with
the Undersigned's telephone or written (including telegraphic) instructions.
Bank shall be entitled to rely solely upon any
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<PAGE> 3
such instructions from persons it reasonably believes to be authorized by the
Undersigned to issue such instructions without making independent inquiry.
Undersigned shall confirm telephone instructions in writing provided, however,
that if a discrepancy occurs between the telephone instructions and the written
confirmation, the telephone instructions shall govern. The Undersigned shall
indemnify Bank for, and hold it harmless from, any and all loss damage, claim,
expense (including reasonable attorneys' fees and allocated costs of Bank's
in-house counsel) or inconvenience, however arising, which Bank suffers or
incurs or might suffer or incur, based on or arising out of the use of presigned
drafts under this Agreement.
9. The Undersigned shall reimburse Bank, upon demand, for the cost of
all reserves required by any governmental authority with respect to drafts
accepted hereunder.
10. Any one or more of the following shall be a default under this
Agreement: (a) any failure to pay any sum due under this Agreement; (b) any
failure to comply with any other provision of this Agreement or of any other
agreement between the Undersigned and Bank; (c) any default under any other
agreement involving the borrowing of money or the extension of credit under
which the Undersigned is obligated as borrower or guarantor; (d) death of the
Undersigned (if an individual); (e) insolvency, failure to pay debts generally
as they become due, general assignment for the benefit of creditors, filing of
any petition, proceeding, case or action for relief under the provisions of the
Bankruptcy Code or other law for relief of or relating to debtors with respect
to the Undersigned; (f) appointment of a receiver, trustee, custodian or similar
official to take possession of any property of the Undersigned; (g) attachment
of an involuntary lien of any kind to the assets or property of the Undersigned.
11. If a default occurs under this Agreement, Bank may declare the
Obligations immediately due and payable, and may exercise any other rights and
remedies provided by law. "Obligations" means all obligations of the Undersigned
under this Agreement, and all other obligations and liabilities of the
Undersigned to Bank, whether now existing or hereafter incurred or created,
whether voluntary or involuntary, whether due or not due, whether absolute or
contingent, or whether incurred directly or acquired by Bank by assignment or
otherwise.
12. If the Undersigned fails to pay any amount when due under this
Agreement, the Undersigned will pay interest on such amount from the date it was
due and payable until the date of payment at the rate per annum (computed on the
basis of a 365-day year and actual days elapsed at the Reference Rate plus 200
bps (___) percentage points. "Reference Rate" means the rate of interest
publicly announced from time to time by Bank in San Francisco, California, as
its reference rate. It is a rate set by Bank based upon various factors
including Bank's costs and designated return, general economic conditions, and
other factors, and is used as a reference point for pricing some loans. Bank may
price loans at, above or below the Reference Rate. Any change in the Reference
Rate shall take effect on the day specified in the public announcement of such
change.
13. The Undersigned shall indemnify Bank for, and hold it harmless from,
any and all loss, damage, claim, expense (including reasonable attorneys' fees
and allocated costs of Bank's in-house counsel) or inconvenience, however
arising, which Bank suffers or incurs or might
-3-
<PAGE> 4
suffer or incur, resulting from any dispute in connection with the underlying
transactions or from any misrepresentation of material fact or any breach of any
express or implied warranty by the Undersigned under this Agreement or
otherwise. The Undersigned shall reimburse Bank for attorneys' fees (including
allocated costs of Bank's in-house counsel) and all collection costs incurred by
Bank in the enforcement of this Agreement.
14. This is a continuing Agreement which will remain in full force and
effect until revoked in writing by the Undersigned or Bank. Any such revocation
shall not release the Undersigned from any liability on account of drafts
accepted by Bank prior to Bank's receipt of notice of revocation.
15. If more than one person signs this Agreement, their obligations
under this Agreement shall be joint and several.
16. This Agreement shall be governed by and construed in accordance with
the law of the State of California.
Dated: December 26th, 1996 MAXTOR CORPORATION
By: /s/ Glenn T. Haubl
--------------------------
Title: Cash Manager
By:
Title:
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<PAGE> 5
ADVANCE ACCOUNT AGREEMENT
TO: Bank of America
We hereby authorize you to open on the books of a Bank of America unit
of your choice, an account or accounts in our name to be designated "Advance
Accounts" or such other designation as you may see fit to give such account or
accounts, and to charge to such account or accounts all drafts drawn on you by
us and all advances of every kind and nature and in any convertible currency
which you may make to us or which you may make for or on our behalf upon our
direction. The maximum amount of such advances at any time shall be as you and
we agree upon in writing from time to time. Upon prior written notice, the
domicile of this loan may be changed from time to time at the Bank's discretion.
In consideration of such advances as you may have made or may hereafter
make, we agree immediately upon your demand to repay to you the total amount of
any and all such advances which you may have made, together with interest
thereon at the rate of _________ percent (___%) per annum, unless a different
rate of interest has been or may be agreed upon in writing between you and us;
until such payment to you, you may retain all drafts and other instruments or
papers evidencing charges to said account.
It is understood that you reserve the right to terminate these
arrangements at any time. We will at your written request execute and deliver to
you a promissory note in that same currency for the then balance in the Advance
Account, payable on demand, and bearing interest as aforesaid; also, in the
event that in connection with advances made under said Advance Account you
deliver, or cause to be delivered, goods or documents into our possession, we
will upon your request grant to you a security interest in such goods or
documents, or upon your request execute and deliver to you trust receipts
therefor.
Very truly yours,
Date: Dec. 13, '96 By: /s/ Treasurer
----------------------------------- ----------------------------------
At: Milpitas, California
-------------------------------------
* as mutually agreed from time to time
Current Agreement LIBOR + 50 basis points.
-5-
<PAGE> 1
EXHIBIT 10.48
Maxtor
Maxtor Peripherals (S) Pte Ltd
No. 2
Singapore
23 March 1997
Mr. Teh Kee Hong
Block 737 Bedok Reservoir Road
Singapore, 03-5348, 5470737
Dear Mr. Teh
Welcome to Maxtor's World Class Team
We are pleased to offer you employment with our Company subject to your
satisfying the Company's appointed doctor that you are in good health and also
subject to the following terms and conditions:
1. Position Offered: Exempt - Managing Director. Maxtor Limited and
Vice President Manufacturing reporting to the
President and CEO of Maxtor Corporation, U.S.A.
2. Salary: You commencing salary will be S$33,000,00 per
month.
3. Transportation: You will be provided with a Mercedes ___ with
operating expenses paid by the Company.
4. Hours of Work: An employee shall perform his/her duties in
such shifts and working hours as may be
determined by the Company at is absolute
discretion from time to time. The number of
working hours shall be regulated by the Company
in accordance with the provisions of the
Employment Act.
Non-Shift
Monday to Friday 8:00 a.m. - 5:30 p.m.
5. Notice of Termination: In the event that you should decide to resign
from the job, you are required to give one
month's written notice or salary in lieu
thereof. Vacation
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<PAGE> 2
leave earned will not be used to shorten the
notice period.
However, if the Company should decide
to terminate your service, the
severance package to be paid to you
will be paid twelve months of base
salary. But the aforementioned
condition will not apply in the event
of a breach of the terms of your
appointment of misconduct on your part,
in which case the Company has the right
to terminate your employment forthwith
without notice.
6. Medical Benefits: The Company will pay for all outpatient medical
treatment expenses incurred by you, after your
commencement of duty for medical attention,
consultation and treatment at the Company's
appointed clinic.
7. Hospitalization: You will be eligible for hospitalization benefits
in accordance with our Group Hospitalization
Insurance Plan.
8. Annual Leave: You will be eligible for annual leave as follows
and they will be scheduled at the convenience of
the Company:
<TABLE>
<CAPTION>
Proof of Service: Annual Leave
----------------- ------------
<S> <C> <C>
(a) 1st - 3rd year 15 } Week
(b) 4th - 5th year 18 } Days
(c) 6th and above 20 }
(maximum)
</TABLE>
9. Medical Leave You will be eligible for sick leave of up to
fourteen working days in any one calendar year if
no hospitalization is necessary and
hospitalization leave of up to sixty calendar
days should you be warded in a hospital.
10. Annual Wage Supplement: You will be eligible to receive the annual wage
supplement of one month's base salary if you
have completed twelve months continuos service
with the Company as of 31st December of each
year. If you have less than one full calendar
2
<PAGE> 3
year's service but have at least one full
calendar month's service, you will receive a
pro-rata annual wage supplement provided you
are still in the Company's employment as of
31st December.
11. Stock Option Plan You will be granted shares under Maxtor's Stock
Option Plan. The total number of shares to be
issued to you is 100,000 subjected to
the next Board of Director's approval.
12. Management Bonus You will participate in Maxtor's Management
System: Bonus System. This plan makes variable payments
subject to Company's performance and
profitability.
The proposed bonus target will be
computed on fifty percent of base
salary or the opportunity to double the
payout according to planned business
performance targets for the 1997 year
your incentive bonus will be prorated
to reflect your start date.
13. Sign-on Bonus USDLR 100,000 fifty percent of which will
be paid on commencement of job and the balance to
be paid twelve months thereof.
14. Confidentiality: You shall observe utmost confidentiality and
secrecy of any and all information received by
you or entrusted to you in the course of your
employment and you shall at all times, whether
during or after the termination of your
employment act with utmost fidelity and not
disclose or divulge such information to a third
party or make use of such information for your
own benefit. Upon the termination of your
employment, you will immediately surrender to
the Company all documents and any other
property entrusted to you in the course of your
employment.
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<PAGE> 4
Please signify your acceptance of these terms and conditions of employment by
signing on the duplicate copy of this letter and returning the same to us for
the Company's records.
May we take this opportunity to congratulate you on your decision to join
Maxtor. There are many challenges and opportunities ahead of us and with winners
like yourself in our world class team, we will definitely be successful in
turning the company around and bringing it back to profitability.
Once again, welcome to the Maxtor family that is filled with fun, excitement and
challenges. We wish you a fulfilling and rewarding career with us.
Yours sincerely,
/s/ Phillip C. Duncan
- ------------------------------
PHILLIP C. DUNCAN
Vice President Human Resources
Maxtor Corporation, U.S.A.
4
<PAGE> 1
EXHIBIT 10.49
OAK CREEK PARK
SINGLE TENANT NET LEASE
WITH
MAXTOR CORPORATION
BUILDING: 510 and 530 Cottonwood Drive, Milpitas, California
DATED: February 23, 1998
<PAGE> 2
SINGLE TENANT NET LEASE
THIS LEASE ("Lease") is made and entered into as of the 23rd day of
February, 1998, by and between MILPITAS OAK CREEK DELAWARE, INC. ("Landlord"), a
Delaware corporation, MAXTOR CORPORATION ("Tenant"), a Delaware corporation.
WITNESSETH:
ARTICLE 1: BASIC PROVISIONS
This Article contains the basic lease provisions between Landlord and
Tenant.
A. PREMISES: That certain parcel of real property
comprising approximately 13.43 acres and
having a common address of 510 and 530
Cottonwood Drive, Milpitas, California, more
particularly described on Exhibit A hereto,
together with the building thereon (the
"Building") containing approximately 180,086
rentable square feet, as further described in
Article 2.
B. COMMENCEMENT DATE: April 1, 1998, subject to Article 2.
C. EXPIRATION DATE: March 31, 2002, subject to Article 2.
D. BASE RENT:
Period Monthly Base Rent
------ -----------------
04/01/98 to 03/31/00 $270,130.00
04/01/00 to 03/31/02 $288,140.00
E. OTHER CHARGES: Tenant shall make the payments for Landlord's
Management Fee, Taxes and Insurance required
under Articles 3, 4, and 5.
F. UTILITIES/REPAIRS:
Tenant shall be responsible for utilities and
repairs as required under Articles 6 and 8.
G. PERMITTED USE: General office and administration, research
and development of computer components,
storage, so-called "pilot" or "prototype"
manufacturing in connection with such
research and development, sales (other than
at retail and open to the general public) and
other related lawful uses approved by
Landlord in advance in writing, subject to
the other provisions of this Lease, and no
other purpose whatsoever. The foregoing uses
shall be consistent with those being
conducted by Tenant at the Premises as of the
date hereof.
<PAGE> 3
H. LETTER OF CREDIT: $500,000.00, as further described in Article
16.
I. BROKER(S): Colliers Parrish International, Inc., who
shall be paid by Landlord as further
described in Article 26.
J. GUARANTOR(S): Hyundai Electronics America, a California
corporation
K. RIDERS/EXHIBITS: This Lease includes Guaranty Exhibit A
(Premises), Exhibit B (Hazardous Materials
Questionnaire), Exhibit C (Form of Letter of
Credit), Exhibit D (Landlord's Work), Exhibit
E (Form of Premises Condition Memorandum) and
Rider One (Rules), all of which are
incorporated herein as if fully set forth.
L. LANDLORD'S NOTICE ADDRESS (SUBJECT TO ARTICLE 25):
c/o (3SIC Realty Corporation
255 Shoreline Road, Suite 600
Redwood City, California 94065
Attention: Investment Manager
Telephone: 650-593-3100
Fax: 650-802-1212
With Copy To:
c/o Tower Realty Management Corporation
255 Shoreline Road, Suite 600
Redwood City, California 94065
Attention: Asset Manager
Telephone: 650-593-3100
Fax: 650-802-1212
M. TENANT'S NOTICE ADDRESS (SUBJECT TO ARTICLE 25):
Maxtor Corporation
2190 Miller Drive
Longmont, Colorado 80501-6744
Attention: Director of Facilities and of
Safety
Telephone: 303/678-2226
Fax: 303/678-2066
N. RENT PAYMENTS: Rent shall be paid to "Milpitas Oak Creek
Delaware, Inc." c/o GSIC Realty Corporation,
Department No. 1571, P.O. Box 61000, San
Francisco, CA 94161-1571, or such other
parties and addresses as to which Landlord
shall provide advance notice.
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<PAGE> 4
The foregoing provisions shall be interpreted and applied in accordance with the
other provisions of this Lease. The terms of this Article, and the terms defined
in Article 31 and other Articles, shall have the meanings specified therefor
when used as capitalized terms in other provisions of this Lease or related
documentation (except as expressly provided to the contrary therein).
ARTICLE 2: PREMISES AND TERM
A. PREMISES: CC&RS AND OTHER MATTERS. Landlord hereby leases to Tenant
and Tenant hereby leases from Landlord the Premises, subject to any existing or
future encumbrances, easements, conditions, covenants and restrictions
("CC&Rs"), rights-of-way, any other matters of record, and such matters as may
be disclosed by inspection or survey, and subject to the provisions herein
contained.
B. TERM. The term ("Term") of this Lease shall commence on the
Commencement Date and end on the Expiration Date, unless sooner terminated as
provided herein.
C. DELIVERY OF POSSESSION AND RELATED MATTERS. The parties acknowledge
and agree as follows:
(i) Tenant is currently in possession and occupying a portion
of the Premises ("Tenant's Current Sublease Space") as a subtenant of an
existing tenant whose lease ("Existing Lease") is scheduled to expire on March
31, 1998.
(ii) Another party ("Other Subtenant") is currently in
possession and occupying a portion of the Premises ("Other Subtenant's Sublease
Space") as a subtenant under the Existing Lease.
(iii) If the Existing Lease is terminated earlier than March
31, 1998, this Lease shall thereupon automatically commence and become effective
for an additional preliminary term ("Preliminary Term") from such date through
the Commencement Date on the same terms and conditions that would apply under
this Lease on the Commencement Date, subject to the other provisions hereof.
(iv) With respect to the Other Tenant's Sublease Space only,
Rent with respect thereto shall be abated to the extent of any delays of
Landlord in delivering possession thereof due to holding over by the Existing
Tenant or Other Subtenant, prorated on a per square foot basis, as determined in
Landlord's sole good faith discretion, and as Tenant's sole remedy for such
delay. In the event of such holding over, Landlord agrees to promptly take
reasonable steps to enforce its available remedies pursuant to the Existing
Lease and in accordance with applicable Laws.
(v) If the Existing Tenant terminates Tenant's sublease of
Tenant's Current Sublease Space for default, Landlord shall have the option to
terminate this Lease by written notice to Tenant within thirty (30) days after
Landlord receives written notice of such event; Tenant agrees to notify Landlord
of such event within ten (10) days after such event occurs.
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<PAGE> 5
ARTICLE 3: PAYMENT OF BASE RENT, BASE RENT INCREASES,
AND OTHER CHARGES
A. BASE RENT. Tenant shall pay Landlord the monthly Base Rent set forth
in Article 1 in advance on or before the first day of each calendar month during
the Term, except that Tenant shall pay Base Rent for the first full calendar
month for which Base Rent shall be due when Tenant executes this Lease.
B. NET LEASE AND MANAGEMENT FEE. The parties intend that Landlord shall
receive the Base Rent free and clear of any and all costs and charges of any
kind or description relating to the Premises, including, but not limited to,
Taxes (as defined in Article 4), Insurance (as defined in Article 5),
maintenance and repair costs, construction and alteration costs, and any other
charges, costs, liens or expenses, of any nature whatsoever in connection with
the ownership and operation of the Premises that arise during the Term hereof,
whether or not contemplated under any provisions of this Lease, and that Tenant
shall pay all of the same when required, except as expressly provided to the
contrary herein. In addition to the Base and all other payments required
hereunder, Tenant shall also pay a management fee to Landlord in the amount of
two percent (2%) of the Base Rent, with each payment of Base Rent, together with
any taxes thereon.
C. ACTUAL AND ESTIMATED TAXES AND INSURANCE. Tenant shall pay Landlord
the Taxes and Insurance charges required under Articles 4 and 5 of this Lease.
Landlord may reasonably estimate the amounts Tenant will be required to pay for
such items from time to time in advance of, or during, each year. In such case:
(i) Tenant shall pay the estimated amounts on a monthly basis on or before the
first day of each calendar month, together with Tenant's payment of Base Rent
(and shall pay the estimated amounts for the first full and any partial calendar
when Tenant executes this Lease if Landlord so requires), (ii) within 120 days
after the end of each calendar year, or as soon thereafter as practicable,
Landlord shall provide a statement showing the actual amounts for such year,
(iii) if Tenant's estimated payments exceed the actual amounts, Landlord shall
provide a credit or refund the difference, (iv) if the actual amounts exceed
Tenant's estimated payments, Tenant shall pay the difference to Landlord
together with Tenant's next payment of Base Rent, and (v) if Landlord also
adjusts the estimated amounts for the current year, Tenant shall also pay any
additional amount required for the portion of the year that has elapsed, and
shall thereafter pay based on the new estimated amounts until the same are
further revised.
D. PRORATIONS. If the Term commences on a day other than the first day
of a calendar month or ends on a day other than the last day of a calendar
month, the Base Rent and any other amounts payable on a monthly basis shall be
prorated on a per them basis for such partial calendar months. If the Base Rent
is scheduled to increase under Article 1 other than on the first day of a
calendar month, the amount for such month shall be prorated on a per them basis
to reflect the number of days of such month at the then current and increased
rates, respectively. If the Term commences other than on January 1, or ends
other than on December 31, Tenant's obligations to pay amounts towards Taxes and
Insurance for such first or final calendar years shall be prorated on a per them
basis to reflect the portion of such years
5
<PAGE> 6
included in the Term. Taxes based on a fiscal year other than a calendar year
shall be subject to the provisions of Article 4.
E. PAYMENTS AFTER LEASE TERM ENDS. Tenant's obligations to pay Taxes,
Insurance or any other amounts accruing during, or relating to, the period prior
to expiration or earlier termination of this Lease, shall survive such
expiration or termination. Landlord may reasonably estimate all or any of such
obligations within a reasonable time before, or anytime after, such expiration
or termination. Tenant shall pay the full amount of such estimate, and any
additional amount due after the actual amounts are determined, in each case
within ten (10) days after Landlord sends a statement therefor. If the actual
amount is less than the amount Tenant pays as an estimate, Landlord shall refund
the difference within thirty (30) days after such determination is made.
F. GENERAL PAYMENT MATTERS. Base Rent, Taxes, Insurance, and any other
amounts which Tenant is or becomes obligated to pay Landlord under this Lease or
other agreement entered in connection herewith, are sometimes herein referred to
collectively as "Rent," and all remedies applicable to the non-payment of rent
shall be applicable thereto. Rent shall be paid in good funds and legal tender
of the United States of America. Tenant shall pay Rent without any deduction,
recoupment, set-off or counterclaim, and without relief from any valuation or
appraisement laws. Rent obligations hereunder are independent covenants. No
delay by Landlord in providing the Statement (or separate statements) shall be
deemed a default by Landlord or a waiver of Landlord's right to require payment
of Tenant's obligations hereunder. In no event shall a decrease in Taxes or
Insurance ever decrease the monthly Base Rent or give rise to a credit in favor
of Tenant. Landlord may apply payments received from Tenant to any obligations
of Tenant then accrued, without regard to such obligations as may be designated
by Tenant.
ARTICLE 4: TAXES
A. TAX PAYMENTS. Tenant shall pay all Taxes applicable to the Premises
during the Term. Tenant shall make all Tax payments under this Article to
Landlord within ten (10) days after notice that such Taxes are payable;
provided, Landlord may require that Tenant pay estimated Taxes in advance on a
monthly basis as further described in Article 3.
B. TAX YEARS AND TAXES PAID IN INSTALLMENTS. Landlord shall include in
Taxes each year hereunder: (i) in general, the amounts levied, assessed or
imposed for such year, whether paid or payable in another year, (ii) for
personal property taxes, the amounts paid during such year, and (iii) for Taxes
paid in installments over more than one year, the amounts paid each year, and
any interest thereon. If any taxing authority uses a fiscal year other than a
calendar year, Landlord may elect from time to time, consistent with sound
accounting and management practices, to require payments by Tenant based on: (a)
amounts paid or payable during each calendar year without regard to such fiscal
years, (b) amounts paid or payable during each calendar year, averaging the
bills for each calendar year based on the number of days or months of such
calendar year included in each fiscal tax year, or (c) amounts paid or payable
for or
6
<PAGE> 7
during each fiscal tax year (subject to proration on a per them basis for
partial fiscal years included in the Term).
C. TAX REFUNDS, PROTEST COSTS, AND ADJUSTMENTS FOR PRIOR YEARS. Landlord
shall provide a credit or refund to Tenant for Tenant's share of any Tax refunds
relating to periods for which Tenant has paid such Taxes hereunder. Tenant shall
pay Tenant's share of any additional Taxes involving an adjustment to Taxes for
a prior year during the Term, due to error by the taxing authority, supplemental
assessment, or other reason, whether or not the Term has theretofore expired.
Landlord may include in Taxes, or subtract from any refunds hereunder, any fees
for attorneys, consultants and experts, and other costs in attempting to
protest, appeal or otherwise seek to reduce or minimize Taxes, whether or not
successful.
D. TENANT'S PERSONAL PROPERTY TAXES. Tenant shall pay prior to
delinquency all taxes, charges or other governmental impositions assessed
against or levied upon all fixtures, furnishings, personal property, systems and
equipment located in or exclusively serving the Premises, and any Work to the
Premises under Article 9 or other provisions of this Lease or related
documentation. Whenever possible, Tenant shall cause all such items to be
assessed and billed separately from the other property of Landlord. In the event
any such items shall be assessed and billed with the other property of Landlord,
Tenant shall pay Landlord its share of such taxes, charges or other governmental
impositions within ten (10) days after Landlord delivers a statement and a copy
of the assessment or other documentation showing the amount of impositions
applicable to Tenant's property.
E. RENT AND OTHER TAXES. Tenant shall pay any rent tax, sales tax,
service tax, transfer tax, value added tax, or any other applicable tax on the
Rent, utilities or services herein, the privilege of renting, using or occupying
the Premises or collecting Rent therefrom, or otherwise respecting this Lease or
any other document entered in connection herewith.
F. TAXES DEFINED. "Taxes," for purposes hereof, shall include all
amounts for federal, state, county, or local governmental, special district,
improvement district, municipal or other political subdivision taxes, fees,
levies, assessments, charges or other impositions of every kind and nature in
connection with the ownership, leasing and operation of the Premises, whether
foreseen or unforeseen, general, special, ordinary or extraordinary (including
real estate and ad valorem taxes, general and special assessments, interest on
special assessments paid in installments, transit taxes, water and sewer rents,
license and business license fees, use or occupancy taxes, taxes based upon the
receipt of rent including gross receipts or sales taxes applicable to the
receipt of rent or service or value added taxes, personal property taxes, and
taxes or charges for fire protection, streets, sidewalks, road maintenance,
refuse or other services). If the method of taxation of real estate prevailing
at the time of execution hereof shall be, or has been, altered so as to cause
the whole or any part of the Taxes now, hereafter or heretofore levied, assessed
or imposed on real estate to be levied, assessed or imposed on Landlord, wholly
or partially, as a capital stock levy or otherwise, or on or measured by the
rents, income or gross receipts received therefrom, then such new or altered
taxes attributable to the Premises shall be included within the term "Taxes,"
except that the same shall not include any portion of such tax attributable to
other income of Landlord not relating to the Premises. Tenant
7
<PAGE> 8
shall pay increased Taxes whether Taxes are increased as a result of increases
in the assessment or valuation of the Premises (whether based on a sale, change
in ownership or refinancing of the Premises or otherwise), increase in tax
rates, reduction or elimination of any rollbacks or other deductions available
under current law, scheduled reductions of any tax abatement, as a result of the
elimination, invalidity or withdrawal of any tax abatement, or for any other
cause whatsoever. If Taxes are reduced by, or credited with, any abatement or
exemption issued by a taxing authority to help finance or reimburse Landlord for
costs incurred to comply with Laws or otherwise, Taxes hereunder shall be
computed without regard to such abatement or exemption (Tenant hereby
acknowledging that Landlord, having incurred such costs, is solely entitled to
such abatement or exemption). Notwithstanding the foregoing, there shall be
excluded from Taxes all excess profits taxes, franchise taxes, gift taxes,
capital stock taxes, inheritance and succession taxes, estate taxes, federal and
state income taxes, and other taxes to the extent applicable to Landlord's
general or net income (as opposed to rents, receipts or income attributable to
operations at the Premises).
G. PROPOSITION 13. Landlord and Tenant acknowledge that Proposition 13
was adopted by the voters of the State of California in 1978 to limit increases
in real estate taxes by limiting reassessments to events such as changes in
ownership. The parties hereby confirm and agree that "Taxes" for purposes of
this Lease shall include, without limitation, increases in real estate taxes
resulting from reassessments based on changes in ownership of the Premises (as
"change in ownership" is defined in California Revenue and Taxation Code
Sections 60 through 62), as well as taxes, assessments, fees, levies and charges
that may be imposed by governmental bodies for services, including, but not
limited to, fire protection, street, sidewalk and road maintenance, refuse
removal and other governmental services because of the limitation on increases
in real estate taxes under Proposition 13.
ARTICLE 5: INSURANCE
A. TENANT'S INSURANCE. Tenant shall maintain at its expense during the
Term with respect to the Premises and Tenant's use thereof:
(i) Worker's Compensation Insurance in the amounts required by
statute, and Employer Liability Insurance in at least the following amounts: (a)
Bodily Injury by Accident $500,000 per accident, (b) Bodily Injury by Disease -
$500,000 per employee, and (c) Aggregate Limit - $1,000,000 per policy year.
(ii) Property Damage Insurance for the protection of Tenant and
Landlord, as their interests may appear, covering any alterations or
improvements in excess of any work provided or paid for by Landlord under this
Lease, Tenant's personal property, business records, fixtures and equipment, and
other insurable risks in amounts not less than the full insurable replacement
cost of such property and full insurable value of such other interests of
Tenant, with coverage at least as broad as the most recent editions published by
Insurance Services Office, Inc. or any successor organization ("ISO"), of: (a)
Building and Personal Property Coverage Form (CPOO10), (b)) Business Income
Coverage Form (CPOO30), covering at least one year of
8
<PAGE> 9
Rent payable under this Lease, (c) Boiler and Machinery Coverage Form (BM0025),
(d) Causes of Special Loss Form (CP1030), and (e) Sprinkler Leakage - Earthquake
Extension (CP1039). Landlord acknowledges that in connection with the coverage
described in the foregoing clause (e), Tenant maintains a sub-limit of
$5,000,000.
(iii) Commercial General Liability Insurance ("CGL") at least as
broad as the most recent ISO edition of Commercial General Liability Coverage
Form (CGO001) with limits of at least the following amounts: (a) Death or Bodily
Injury - $2,000,000, (b) Property Damage or Destruction (including loss of use
thereof) - $1,000,000, (c) Products/Completed Operations $1,000,000, (d)
Personal or Advertising injury - $1,000,000, (e) Each Occurrence Limit
$2,000,000, and (f) General Aggregate Limit - $3,000,000 per policy year. Such
policy shall include endorsements: (1) for contractual liability covering
Tenant's indemnity obligations under this Lease (to the extent such coverages
are afforded under the CGL policy described herein)., and (2) adding Landlord,
Landlord's management company (currently, Tower Realty Management Corporation),
and other parties designated by Landlord, as Additional Insureds, on a form at
least as broad as the most recent edition of Additional Insured - Manager or
Lessor of Premises Endorsement Form (CG2011) published by ISO.
(iv) Environmental Impact Liability Insurance ("EIL") in the
amount of at least $2,000,000 per claim (and which shall apply to claims made
during the Term and for a period of at least 18 months thereafter).
Notwithstanding the foregoing, Tenant shall not be obligated to maintain the
coverage described in this clause (iv) so long as Tenant's use of the Premises
is consistent with that described in Article 1 hereof.
B. CERTIFICATES, SUBROGATION AND OTHER MATTERS. Tenant shall provide
Landlord with certificates evidencing the coverage required hereunder prior to
the Commencement Date, or Tenant's entry to the Premises for construction of
improvements or any other purpose (whichever first occurs). Such certificates
shall: (i) be on ACORD Form 27 or such other form approved or required by
Landlord, (ii) state that such insurance coverage may not be changed, canceled
or non-renewed without at least thirty (30) days' prior written notice to
Landlord, and (iii) include, as attachments, true and correct photocopies of the
Additional Insured endorsements to Tenant's CGL policy required above. Tenant
shall provide renewal certificates to Landlord at least thirty (30) days prior
to expiration of such policies. Except as expressly provided to the contrary
herein, coverage hereunder shall apply to events occurring during the policy
year regardless of when a claim is made. Landlord may periodically require that
Tenant reasonably increase or expand the aforementioned coverage. Except as
provided to the contrary herein, any insurance carried by Landlord or Tenant
shall be for the sole benefit of the party carrying such insurance. Tenant's
insurance policies shall be primary to all policies of Landlord and any other
Additional Insureds (whose policies shall be deemed excess and
non-contributory). All insurance required hereunder shall be provided by
responsible insurers licensed in the State in which the Premises is located, and
shall have a general policy holder's rating of at least A and a financial rating
of at least X in the then current edition of Best's Insurance Reports. The
parties mutually hereby waive all rights and claims against each other for all
losses covered by their respective insurance policies, and waive all rights of
subrogation of their respective insurers. The parties agree that their
respective insurance policies are now, or shall be, endorsed such that
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said waiver of subrogation shall not affect the right of the insured to recover
thereunder. Landlord disclaims any representation as to whether the foregoing
coverages will be adequate to protect Tenant, and Tenant agrees to carry such
additional coverage as may be necessary or appropriate.
C. WAIVER OF CLAIMS. Except for claims arising from Landlord's
intentional misconduct or grossly negligent acts which are not covered or
required to be covered by Tenant's insurance hereunder, Tenant waives all claims
against Landlord for injury or death to persons, damage to property or to any
other interest of Tenant sustained by Tenant or any party claiming by or through
Tenant resulting from: (i) any occurrence in or upon the Premises, (ii) leaking
of roofs, bursting, stoppage or leaking of water, gas, sewer or steam pipes or
equipment, including sprinklers, (iii) wind, rain, snow, ice, flooding
(including flooding of basements and other subsurface areas), freezing, fire,
explosion, earthquake, excessive heat or cold, dampness, fire or other casualty,
(iv) the Premises, systems and equipment being defective, out of repair, or
failing, and (v) vandalism, malicious mischief, theft, misappropriation or other
acts or omissions of any parties including Tenant's employees, agents,
employees, invitees and contractors (and Tenant shall give Landlord immediate
notice of any such occurrences). To the extent that Tenant is required to or
does carry insurance hereunder, Tenant agrees that Tenant's property loss risks
shall be borne by such insurance, and Tenant agrees to seek recovery only from
its insurance carriers in the event of such losses; for purposes hereof, any
deductible amount shall be treated as though it were recoverable under such
policies. This provision is in addition to, and not in limitation of, other
provisions of this Lease limiting Landlord's liability.
D. LANDLORD'S INSURANCE; TENANT'S PAYMENTS. Landlord shall maintain the
following insurance ("Landlord's Insurance") respecting the Premises. Landlord's
Insurance shall include commercial general liability insurance for personal and
bodily injury, death and property damage, with limits of at least $1,000,000 per
occurrence. Landlord's Insurance shall further include insurance against direct
physical loss on the Building and Premises (which shall include earthquake,
flood and boiler/machinery coverage) at limits equal to replacement cost and
rent lost coverage equal to at least one (1) year's Rent and Additional Rent.
Tenant shall pay Landlord for the costs of Landlord's Insurance which Landlord
shall pay during any calendar year or any portion thereof which occurs during
the Term (subject to proration for partial initial or final years as provided in
Article 3). Tenant shall make all payments under this Article within ten (10)
days after notice that the same are payable and the amount of Tenant's share
thereof; provided, that Landlord may require that Tenant make estimated
insurance payments in advance on a monthly basis as further described in Article
3. Landlord shall provide Tenant with certificates evidencing the Landlord's
Insurance coverage required hereunder within thirty (30) days of the signing of
this Lease. Such certificates shall: (i) be on ACORD Form 27, and (ii) state
that such coverage may not be changed (as it relates specifically to the
Premises and the Building), canceled or nonrenewed without at least thirty (30)
days' prior written notice to Tenant. Landlord shall provide renewal
certificates to Tenant within ten (10) days of renewal of such policies. All
insurance required hereunder shall be provided by insurers licensed in the State
of California and shall have a general policy holder's rating of at least A and
a financial rating of at least X in the current edition of Best's Insurance
Reports.
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ARTICLE 6: UTILITIES AND SERVICES
A. TENANT TO OBTAIN UTILITIES AND SERVICES. Tenant shall obtain in
Tenant's own name, and pay the utility company or other provider directly for,
all utilities and services furnished to or for the Premises, including without
limitation, electricity, gas, water, sewer, steam, fire protection, telephone
and other communication services, heating, ventilating and air-conditioning
("HVAC"), fire and burglar alarm monitoring and other such services, pest and
rodent control, janitorial, cleaning and trash collection, including all
connection, disconnection and maintenance charges, deposits, taxes or fees
therefor.
B. INSTALLATION, CONNECTION AND USE OF UTILITY EQUIPMENT. Tenant shall
install and connect call equipment and lines required to supply such utilities
to the extent not already available at or serving the Premises, or at Landlord's
option shall repair, after or replace any such existing items. Tenant shall
maintain, repair and replace all such items, operate the same, and keep the same
in good working order and condition, as further provided in Article 8. Tenant
shall not install any equipment or fixtures, or use the same, so as to exceed
the safe and lawful capacity of any utility equipment or lines serving the same.
The installation, alteration, replacement or c Connection of any utility
equipment and lines; shall be subject to the requirements for Work to the
Premises set forth in Article 9. Tenant shall ensure that all HVAC equipment is
installed and operated at all times in a manner to prevent roof leaks, damage or
noise due to vibrations or improper installation, maintenance or operation.
Tenant shall at all times keep the Premises sufficiently heated to avoid
freezing of pipes.
C. INTERRUPTIONS. Landlord shall not be liable in damages or otherwise
for any failure or interruption of any utilities or services and Tenant shall
not be entitled to terminate this Lease or abate any portion of the Rent due
under this Lease as a result of such failure or interruption. Notwithstanding
the foregoing to the contrary, if: (a) any utilities shall fail or be
interrupted as a result of Landlord's gross negligence (and not caused by Tenant
or its employees, agents or contractors), and Tenant is unable to and does not
use, the Premises as a result of such failure or interruption , and (b) Tenant
shall have given written notice respecting such failure or interruption to
Landlord, and Landlord shall have failed to cure such failure or interruption
within ten (10) consecutive business days after receiving such notice, or such
additional time as may be required due to acts of God, force majeure, casualty
damage, strikes, shortages of labor or materials, or other causes beyond
Landlord's reasonable control, Rent hereunder shall thereafter be abated until
such time as such utilities are restored or Tenant begins using the Premises
again, whichever shall first occur. Notwithstanding anything to the contrary
contained herein, if Tenant, or its contractors, or their respective officers,
employees, contractors, invitees or agents, delay Landlord in restoring the
utilities, Landlord shall have additional time to complete the restoration equal
to such delay and Tenant shall pay Landlord all Rent for the period of such
delay. Such abatement of Rent shall be Tenant's sole recourse in the event of a
failure or interruption of utilities.
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ARTICLE 7: USE, COMPLIANCE WITH LAWS, AND RULES
A. USE OF PREMISES. Tenant shall use the Premises only for the permitted
use identified in Article 1, and no other purpose whatsoever, subject to the
other provisions hereof and of this Lease.
B. LAWS AND OTHER REQUIREMENTS. Tenant shall not use or permit within
the Premises anything that will: (i) violate the requirements of Landlord's
insurers (of which Landlord has notified Tenant in writing), the American
Insurance Association, or any board of underwriters, (ii) cause a cancellation
of Landlord's policies, impair the insurability of the Premises, or increase
Landlord's premiums (any such increase shall be paid by Tenant without such
payment being deemed permission to continue such activity or a waiver of any
other remedies of Landlord), or (iii) violate the requirements of any Lenders
(of which Landlord has notified Tenant in writing), the certificates of
occupancy issued for the Premises, or any other requirements, covenants,
conditions or restrictions of record or of which Tenant has otherwise been
notified affecting the Premises at any time. Tenant shall comply with all Laws
relating to the Premises and Tenant's use of the Premises, including Laws
governing Hazardous Materials as described in Article 29, and the Disabilities
Acts as described in Article 30. Tenant's obligations to comply with Laws shall
include, without limitation: (a) obtaining and maintaining all permits,
licenses, certificates and approvals (including any fire department approvals)
to conduct its business in the Premises, or any necessary waivers or variances,
without thereby subjecting Landlord, the Premises or other parties to any costs,
requirements, liabilities or restrictions, (b) any work to or for the Premises
(or any systems or equipment exclusively serving the Premises, including any
freon retrofitting work for such exclusive systems and equipment) required by
Laws, and (c) any work outside the Premises (if Landlord permits such work)
required by Laws based on Tenant's use of, work within, or systems or equipment
exclusively serving, the Premises, whether any such work is deemed structural,
involves a capital expenditure or results in a benefit extending beyond the
Term. Any work hereunder shall be deemed "Work" subject to Article 9.
C. RULES. Tenant shall comply with the Rules set forth in Rider One
attached hereto (the "Rules"). Landlord shall have the right, by notice to
Tenant, to reasonably amend such Rules and supplement the same with other
reasonable Rules relating to the Premises, or the promotion of safety, care,
efficiency, cleanliness or good order therein. Nothing herein shall be construed
to give Tenant or any other Person any claim, demand or cause of action against
Landlord arising out of the violation of such Rules by any other party, or out
of the enforcement, modification or waiver of the Rules by Landlord in any
particular instance.
ARTICLE 8: MAINTENANCE AND REPAIRS
A. INITIAL CONDITION OF PREMISES. Tenant has inspected the Premises (and
all systems, equipment, fixtures, improvements and facilities therein), has
determined that the same is satisfactory, and agrees to accept the same "as is"
without any agreements, representations, understandings or obligations on the
part of Landlord to perform any alterations, repairs or
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improvements except as may be expressly provided in this Lease. Notwithstanding
the foregoing, Landlord agrees to perform or cause to be performed in the
Premises, other than in Tenant's Current Sublease Space, the repairs and
improvements ("Landlord's Work") described in Exhibit D attached hereto and made
a part hereof, at Landlord's sole cost and expense. Landlord shall endeavor to
complete Landlord's Work on or before the Commencement Date or within sixty (60)
days thereafter. Tenant shall execute a confirmation in the form of the Premises
Condition Memorandum attached hereto as Exhibit E, within fifteen (15) days
after requested by Landlord from time to time, to confirm the satisfactory
completion by Landlord of Landlord's Work (or, in the event completion of
Landlord's Work occurs at varying times, such items thereof as may be completed
from time to time). In the event Tenant shall fail to execute the Premises
Condition Memorandum within said fifteen (15) day period, or within said time
period advise Landlord in writing of Tenant's objections thereto, Tenant's
failure to so execute shall be deemed Tenant's acceptance, as true, of the
statements set forth in said Premises Condition Memorandum.
B. TENANT MAINTENANCE AND REPAIRS. Tenant shall keep the Premises in
good working order, repair and condition (which condition shall also be clean,
sanitary, sightly and free of pests and rodents). Tenant's obligations hereunder
shall include but not be limited to: (i) all plumbing fixtures, equipment and
systems, including sinks, toilets, faucets, interior drainage systems, ducts,
pipes, vents, and lines for water and sewer (including free flow up to the
common sewer line), (ii) all trade and other fixtures and equipment (including
refrigeration systems), interior and exterior walls, floors, carpets and other
floor coverings, cabinets, millwork, paneling and other finish work, and
ceilings, (iii) the roof (including maintenance and repair of the roof membrane,
parapet, walls and all parts constituting the roof system, any roof penetrations
made or used by or for Tenant [provided, this provision shall not be construed
as permission to make roof penetrations without Landlord's express written
consent], all roof leaks through the roof membrane or otherwise, and any
necessary re-roofing during the Term, but excluding the roof structure), (iv)
all windows, doors and entrances (including mullions and gaskets, hardware and
frames), exterior and interior glass (including plate glass, showcases,
storefronts and skylights, and including cleaning both interior and exterior
surfaces), (v) HVAC, electrical, gas, steam, and other utility and mechanical
facilities, panels, wiring and equipment, including interior and exterior
lighting fixtures, lamps, ballasts, bulbs and tubes, fans, vents, lines, and
exhaust equipment; (vi) fire extinguishers, sprinklers and other fire protection
systems (including required testing and inspections, and any modifications or
additional sprinkler heads required by reason of Tenant's business, leasehold
improvements or the location of Tenant's partitions, trade fixtures or other
items, or by any Law or requirements of Landlord's insurers, including
requirements in order to qualify for the full rate allowance for sprinklers),
(vii) interior and exterior repainting, (viii) telephone and computer conduits
and cabling, including all distribution throughout the Premises from the main
distribution frame for the Building, (ix) sweeping, cleaning, snow and ice
removal, maintenance and repair of any driveways, walkways, loading areas, and
parking lots, including slurry sealing and striping, and any necessary
resurfacing or repaving during the Term, (x) landscaping (including regular
mowing, watering, fertilization, weed prevention, maintaining any irrigation
system, pruning all shrubs and trees, and other appropriate care), (xi)
maintaining any spur track serving the Building (and Tenant shall sign and
comply with a joint maintenance agreement with any railroad company
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servicing the Building, if requested by Landlord or such railroad company),
(xii) signs, (xiii) gutters and downspouts, (xiv) dock boards, dock revelers
and/or dock bumpers, security gates, and overhead truck doors, (xv) keys and
locks, and (xvi) other systems, equipment, fixtures, alterations and
improvements in or for the Premises, whether installed by Landlord or Tenant.
Tenant's repair obligations hereunder shall include necessary replacements, and
expenditures required to comply with all Laws now or hereafter enacted, whether
the work is structural, involves a capital expenditure or results in a benefit
extending beyond the Term. Any repairs or other work by Tenant hereunder shall
be deemed "Work" under Article 9, and shall be subject to all of the
requirements thereunder. The installation of any new or replacement equipment,
components or parts shall be subject to Landlord's prior written approval as to
make, manufacturer, quality, installation, contractor, and such other items as
Landlord may reasonably require, and shall in all cases be the same or better
quality than the original items; provided that Landlord's prior approval shall
not be required for the installation of equipment, components or parts which
cost less than $5,000.00, so long as Tenant shall promptly upon completion of
such installation furnish Landlord with information as to the make and
manufacturer of the item and the contractor making the installation. Tenant
shall replace any damaged or broken glass in the Premises (including all
interior and exterior doors, windows and showcases) with glass of the same kind,
size, and quality. Tenant shall repair any damage to the Premises (including
exterior doors and windows) caused by vandalism or any unauthorized entry.
C. EQUIPMENT AND LANDSCAPE MAINTENANCE CONTRACTS. Tenant shall enter
annual, written maintenance contracts with competent, licensed contractors
reasonably approved or designated by Landlord for all landscaping, and any HVAC
units or other systems or equipment on the Premises. Such HVAC contracts shall
include, and Tenant shall require that such contractors provide: (i) inspection,
cleaning and testing at least semi-annually (or more frequently if required by
applicable Law or if reasonably required by Landlord), (ii) any servicing,
maintenance, repairs and replacements of filters, belts or other items
determined to be necessary or appropriate as a result of such inspections and
tests, or by the manufacturers' warranty, service manual or technical bulletins,
or otherwise required to ensure proper and efficient operation, including
emergency work, (iii) all other work as shall be reasonably required by Tenant,
Landlord or Landlord's insurance carriers, (iv) a detailed record of all
services performed, and (v) an annual service report at the end of each calendar
year (Tenant shall provide Landlord with a copy of such annual reports promptly
upon Tenant's receipt thereof). Not later than ten (10) days after the
commencement Date and annually thereafter, Tenant shall provide Landlord with a
copy of all maintenance contracts required hereunder, and written evidence
reasonably satisfactory to Landlord that the fees therefor have been paid. Such
maintenance contracts represent part of Tenant's obligations under this Article,
and shall not be deemed to limit Tenant's general obligations to keep the
landscaping in good condition, and any HVAC equipment and other systems and
equipment hereunder in good working order, repair and condition as further
described in Paragraph B, above.
D. LANDLORD'S STRUCTURAL REPAIRS. Landlord shall repair only the
structural elements of the Building. As conditions to Landlord's repair
obligations, Tenant shall give Landlord reasonable prior notice of the necessity
for such repairs, and any damage shall not have
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been caused by any act or omission of Tenant or any other occupant of the
Premises, or any of their employees, agents, invitees or contractors.
E. LANDLORD'S CURE. In the event Tenant shall fail to perform any of its
obligations as set forth in this Article 8, Landlord shall have the right to
perform such obligations on behalf of Tenant in accordance with Article 15.G.
hereof.
ARTICLE 9: TRADE FIXTURES, ALTERATIONS AND LIENS
A. ALTERATIONS AND APPROVAL. Tenant shall not attach any fixtures,
equipment or other items to the Premises, or paint or make any other additions,
changes, alterations or improvements to the Premises or the systems and
equipment serving the Premises (all such work is referred to collectively herein
as the "Work"), without the prior written consent of Landlord. Landlord shall
not unreasonably withhold consent, except that Landlord reserves the right to
withhold consent in Landlord's sole discretion for Work affecting the structure,
safety, efficiency or security of the Premises, or the appearance of the
Premises from any common or public areas. In seeking approval, Tenant shall
provide Landlord with notice of whether the Work will involve or affect any
Hazardous Materials, whether such materials are customary and usual based on
standard industry practices, and all other details relating thereto.
Notwithstanding the foregoing to the contrary, Tenant may perform Work in the
Premises not affecting the structure or systems of the Building, without
Landlord's consent, provided such Work (i) shall not cost more than $50,000.00
in the aggregate in any twelve (12) month period, and (ii) shall be subject to
all other provisions of this Lease, including, but not limited to, the other
provisions of this Article (other than clauses (i) and (ii) of Paragraph B) and
the Rules attached hereto as Rider One.
B. APPROVAL CONDITIONS. Landlord reserves the right to impose
requirements as a condition of such consent or otherwise in connection with the
Work, including requirements that Tenant: (i) use parties contained on
Landlord's approved list (if reputable and available on commercially reasonable
terms) or submit for Landlord's prior written approval the names, addresses and
background information concerning all architects, engineers, contractors,
subcontractors and suppliers Tenant proposes to use, (ii) submit for Landlord's
written approval detailed plans and specifications prepared by licensed and
competent architects and engineers, (iii) obtain and post permits, (iv) provide
bonds, additional insurance, and/or a cash deposit of the total amount required
to pay for the Work (including plans, specifications, engineering and other
lienable costs, and Landlord's fee described below) for Landlord to release or
apply as the Work is properly completed and lien waivers, affidavits and other
documentation satisfactory to Landlord are submitted, (v) submit architect,
engineer, contractor, subcontractor and supplier affidavits of payment and
recordable lien waivers in compliance with the Laws of the State in which the
Premises is located, (vi) use union labor (if Landlord uses union labor), (vii)
permit Landlord or its representatives to inspect the Work at reasonable times,
and (viii) comply with such other requirements as Landlord may impose concerning
the manner and times in which such Work shall be done. Landlord may require, at
the time Landlord consents to the Work, that all Work be performed under
Landlord's supervision, and Landlord reserves the right to designate the
architects, engineers, contractors, subcontractors and suppliers who will design
and perform
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all Work and supply all materials affecting the systems and equipment or
structure of the Premises. If Landlord consents, inspects, supervises,
recommends or designates any architects, engineers, contractors, subcontractors
or suppliers, the same shall not be deemed a warranty as to the adequacy of the
design, workmanship or quality of materials, or compliance of the Work with the
plans and specifications or any Laws.
C. PERFORMANCE OF WORK. All Work shall be performed: (i) in a thoroughly
first class, professional and workmanlike manner, (ii) only with materials that
are new, high quality, and free of material defects, (iii) strictly in
accordance with plans, specifications, parties and other matters approved or
designated by Landlord in advance in writing, (iv) not to adversely affect the
systems and equipment of the structure of the Premises, (v) diligently to
completion and so as to avoid any disturbance, disruption or inconvenience to
other parties, and (vi) in compliance with all Laws, the Rules and other
provisions of this Lease, and such other requirements as Landlord may impose
concerning the manner and times in which such Work shall be done. Any work which
may interfere with the conduct of business by other parties shall, at Landlord's
option, be performed at times other than Landlord's normal business hours (at
Tenant's sole cost). If Tenant fails to perform the Work as required herein or
the materials supplied fail to comply herewith or with the specifications
approved by Landlord, and Tenant fails to cure such failure within 48 hours
after notice by Landlord (except notice shall not be required in emergencies),
Landlord shall have the right to stop the Work until such failure is cured
(which shall not be in limitation of Landlord's other remedies and shall not
serve to abate the Rent or Tenant's other obligations under this Lease). Upon
completion of any Work hereunder, Tenant shall provide Landlord with as built"
plans, copies of all construction contracts, and proof of payment for all labor
and materials.
D. LIENS. Tenant shall pay all costs for the Work when due. Tenant shall
keep the Premises and this Lease free from any mechanic's, materialman's,
architect's, engineer's or similar liens or encumbrances, and any claims
therefor, or stop or violation notices, in connection with any Work. Tenant
shall give Landlord notice at least ten (10) days prior to the commencement of
any Work (or such additional time as may be necessary under applicable Laws), to
afford Landlord the opportunity of posting and recording appropriate notices of
non-responsibility. Tenant shall remove any such claim, lien or encumbrance, or
stop or violation notices of record, by bond or otherwise within ten (10) days
after notice by Landlord. If Tenant fails to do so, Landlord may pay the amount
(or any portion thereof) or take such other action as Landlord deems necessary
to remove such claim, lien or encumbrance, or stop or violation notices, without
being responsible for investigating the validity thereof. The amount so paid and
costs incurred by Landlord shall be deemed additional Rent under this Lease
payable upon demand, without limitation as to other remedies available to
Landlord. Nothing contained in this Lease shall authorize Tenant to do any act
which shall subject Landlord's title to, or any Lender's interest in, Premises
or this Lease to any such claims, liens or encumbrances, or stop or violation
notices, whether claimed pursuant to statute or other Law or express or implied
contract.
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E. REMOVAL OF WORK UPON TERMINATION OF LEASE. All Work hereunder shall
remain or be removed from the Premises upon expiration or earlier termination of
this Lease to the extent required under Article 23.
F. LANDLORD'S FEES AND COSTS. Tenant shall pay Landlord a reasonable fee
for reviewing the Work, not to exceed two percent (2%) of the total cost of the
Work (including costs of plans and permits therefor), but not to exceed
$225,000.00 on any one project, and Landlord's out-of-pocket costs incurred to
third parties, including any costs for engineering, architectural or consulting
services, and other matters in connection with the Work, payable within ten (10)
days after billed.
ARTICLE 10: INTENTIONALLY DELETED
ARTICLE 11: CASUALTY DAMAGE
A. RESTORATION. Tenant shall promptly notify Landlord of any damage to
the Premises by fire or other casualty. If the Premises shall be damaged by fire
or other casualty, Landlord shall use available insurance proceeds to restore
the Premises to substantially the same condition prior to the casualty, except:
(i) for modifications required by zoning and building codes and other Laws or by
any Lender, any other modifications deemed reasonably desirable by Landlord
(provided the rentable square footage of the Building is not substantially
changed), and (ii) Landlord shall not be required to repair or replace any of
Tenant's furniture, furnishings, fixtures or equipment, or any alterations or
improvements in excess of any work provided or paid for by Landlord under this
Lease. Landlord shall not be liable for any inconvenience or annoyance to Tenant
or its visitors, or injury to Tenant's business resulting in any way from such
damage or the repair thereof. Promptly following completion of Landlord's
restoration work, Tenant shall repair and replace Tenant's furniture,
furnishings, fixtures, equipment, and any alterations or improvements made by
Tenant in excess of those provided or paid for by Landlord, subject to and in
compliance with the other provisions of this Lease.
B. ABATEMENT OF RENT. Landlord shall use any available rental loss
insurance proceeds to allow Tenant a proportionate abatement of Base Rent from
the date of the casualty through the date that Landlord substantially completes
Landlord's repair obligations hereunder (or the date that Landlord would have
substantially completed such repairs, but for delays by Tenant or any of its
agents, employees, invitees, Transferees and contractors), provided such
abatement: (i) shall apply only to the extent the Building is untenantable
(including, but not limited to, untenantable because the appropriate
governmental authority has terminated or suspended the certificate of occupancy
for the Building) for the purposes permitted under this Lease and not used by
Tenant as a result thereof, based proportionately on the rentable square footage
of the Building so affected and not used, and (ii) shall not apply if Tenant or
any its agents, employees, invitees, Transferees or contractors caused the
damage.
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C. TERMINATION OF LEASE BY LANDLORD. Notwithstanding the foregoing to
the contrary, in lieu of performing the restoration work, Landlord may elect to
terminate this Lease by notifying Tenant in writing of such termination within
ninety (90) days after the date of damage (such termination notice to include a
termination date providing at least thirty (30) days for Tenant to vacate the
Premises), if the Premises shall be materially damaged by Tenant or its
employees or agents, or if the Premises shall be damaged by fire or other
casualty or cause such that: (a) repairs to the Premises and access thereto
cannot reasonably be completed within 180 days after the casualty without the
payment of overtime or other premiums, (b) more than twenty-five percent (25%)
of the Premises is affected by the damage and fewer than twenty-four (24) months
remain in the Term, or any material damage occurs to the Premises during the
last twelve (12) months of the Term, (c) any Lender shall require that the
insurance proceeds or any portion thereof be used to retire the Mortgage debt
(or shall terminate the ground lease, as the case may be), or the damage is not
fully covered, except for deductible amounts, by Landlord's insurance policies,
or (d) the cost of the repairs, alterations, restoration or improvement work
would exceed twenty-five percent (25%) of the replacement value of the Building.
D. TERMINATION OF LEASE BY TENANT. Notwithstanding any provision hereof
to the contrary, Tenant may terminate this Lease if Tenant is unable to use all
or a substantial portion of the Premises as a result of fire or other casualty
not caused by Tenant or its employees or agents, and: (a) Landlord fails to
commence restoration work to the Premises and access thereto within ninety (90)
days after the damage occurs, or (b) Landlord fails to substantially complete
such work within one (1) year, or such additional time as may be necessary due
to strikes, lock-outs or other labor troubles, shortages of equipment or
materials, governmental requirements, power shortages or outages or other causes
beyond Landlord's reasonable control, or (c) such work is reasonably estimated
(which estimate Landlord shall provide within ninety (90) days following the
casualty), to take more than one (1) year to substantially complete after being
commenced, or (d) more than twenty-five percent (25%) of the Premises is
affected by the damage, and fewer than twenty-four (24) months remain in the
Term. In order to exercise any of the foregoing termination rights, Tenant must
send Landlord at least sixty (60) days (but not more than one hundred and twenty
(120) days advance notice specifying the basis for termination, and such notice
must be given no later than thirty (30) days following the occurrence of the
condition serving as the basis for the termination right invoked by Tenant. Such
termination rights shall not be available to Tenant if: Landlord substantially
completes the repairs to the Premises and access thereto within sixty (60) days
after Tenant's notice. Notwithstanding anything to the contrary contained
herein, if Tenant, or its contractors, or their respective officers, employees,
contractors, invitees or agents, delay Landlord in performing the repairs,
Landlord shall have additional time to complete the work equal to such delay and
Tenant shall pay Landlord all Rent for the period of such delay. Tenant agrees
that the abatement of Rent and termination right provided herein shall be
Tenant's sole recourse in the event of such damage, and waives any other rights
Tenant may have under any applicable Law to perform repairs or terminate the
Lease by reason of damage to the Premises or Building. Tenant hereby waives the
provisions of California Civil Code, Sections 1932(2), 1933(4) and 1942, as the
same may be modified or replaced hereafter.
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ARTICLE 12: CONDEMNATION
If at least fifty percent (50%) of the rentable area of the Building
shall be taken by power of eminent domain or condemned by a competent authority
or by conveyance in lieu thereof for public or quasi-public use
("Condemnation"), including any temporary taking for a period of one year or
longer, this Lease shall terminate on the date possession for such use is so
taken. If less than fifty percent (50%) of the rentable area of the Building is
taken, (i) Landlord may elect to terminate this Lease upon at least thirty (30)
days' prior notice to Tenant, and (ii) Tenant may elect to terminate this Lease
upon at least thirty (30) days' prior notice to Tenant, provided that as a
result of such taking, Tenant's business operations in the Premises are
materially and adversely affected. The parties further agree that: (a) if this
Lease is terminated, all Rent shall be apportioned as of the date of such
termination or the date of such taking, whichever shall first occur, (b) if the
taking is temporary, Rent shall not be abated for the period of the taking, but
Tenant may seek a condemnation award therefor (and the Term shall not be
extended thereby), and (c) if this Lease is not terminated but any part of the
Building is permanently taken, the Rent shall be proportionately abated based on
the square footage of the Building so taken. Landlord shall be entitled to
receive the entire award or payment in connection with such Condemnation and
Tenant hereby assigns to Landlord any interest therein for the value of Tenant's
unexpired leasehold estate or any other claim and waives any right to
participate therein, except that Tenant shall have the right to file any
separate claim available to Tenant for a temporary taking of the leasehold as
described above, and for moving expenses and any taking of Tenant's personal
property, provided such award is separately payable to Tenant and does not
diminish the award available to Landlord or any Lender. Tenant hereby waives the
provisions of California Cede of Civil Procedure Section 1265.130 allowing it to
petition the superior court to terminate this Lease in the event of a partial
taking of the Premises.
ARTICLE 13: ASSIGNMENT AND SUBLETTING
A. TRANSFERS. Tenant shall not, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld as further described
below: (i) assign, mortgage, pledge, hypothecate, encumber, or permit any lien
to attach to, or otherwise transfer, this Lease or any interest hereunder, by
operation of Law or otherwise, (ii) sublet the Premises or any part thereof,
(iii) permit the use of the Premises by any Persons other than Tenant and its
employees (all of the foregoing are hereinafter sometimes referred to
collectively as "Transfers" and any Person to whom any Transfer is made or
sought to be made is hereinafter sometimes referred to as a "Transferee"), or
(iv) advertise the Premises or Lease for Transfers. If Tenant shall desire
Landlord's consent to any Transfer, Tenant shall notify Landlord in writing,
which notice shall include: (a) the proposed effective date (which shall not be
less than thirty (30) nor more than 180 days after Tenant's notice), (b) the
portion of the Premises to be Transferred (herein called the "Subject Space"),
(c) the terms of the proposed Transfer and the consideration therefor, the name,
address and background information concerning the proposed Transferee, and a
true and complete copy of all proposed Transfer documentation, and (d) financial
statements (balance sheets and income/expense statements for the current and
prior three (3) years) of the proposed Transferee, in form and detail reasonably
satisfactory to Landlord, certified by an officer, partner
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or owner of the Transferee, and any other information to enable Landlord to
determine the financial responsibility, character, and reputation of the
proposed Transferee, nature of such Transferee's business and proposed use of
the Subject Space, and such other information as Landlord may reasonably
require. Any Transfer made without complying with this Article shall at
Landlord's option be null, void and of no effect, or shall constitute a Default
under this Lease. Whether or not Landlord shall grant consent, Tenant shall pay
$1,000 towards Landlord's review and processing expenses, as well as any legal
fees incurred by Landlord within ten (10) days after written request by
Landlord.
B. APPROVAL. Landlord will not unreasonably withhold its consent to any
proposed Transfer of the Subject Space to the Transferee on the terms specified
in Tenant's notice. The parties hereby agree that it shall be reasonable under
this Lease and under any applicable Law for Landlord to withhold consent to any
proposed Transfer where one or more of the following applies (without limitation
as to other reasonable grounds for withholding consent): (i) the Transferee is
of a character or reputation or engaged in a business which is not consistent
with the quality or nature of the Premises, (ii) the Transferee intends to use
the Subject Space for purposes which are not permitted under this Lease, (iii)
the Subject Space is not regular in shape with appropriate means of ingress and
egress suitable for normal renting purposes, would result in more than a
reasonable number of occupants, or would require increased services by Landlord,
(iv) the Transferee is either a government (or agency or instrumentality
thereof), (v) the proposed Transferee or any affiliate thereof has negotiated to
lease space from Landlord or its affiliates during the prior twelve (12) months,
(vi) the proposed Transferee does not have, in Landlord's sole good faith
determination, satisfactory references or a reasonable financial condition in
relation to the obligations to be assumed in connection with the Transfer, (vii)
the Transfer involves a partial or collateral assignment, or a mortgage, pledge,
hypothecation, or other encumbrance or lien on this Lease, or a Transfer by
operation of Law, (viii) the proposed Transfer involves conversion, merger or
consolidation of Tenant into a limited liability company or limited liability
partnership which would have the legal effect of releasing Tenant from any
obligations under this Lease, (ix) the proposed Transfer would cause Landlord to
be in violation of any Laws or any other lease, Mortgage or agreement to which
Landlord is a party, or would create adverse tax consequences for Landlord, or
(x) Tenant has committed and failed to cure a Default. If Tenant disagrees with
Landlord's decision to deny approval, Tenant's sole remedy shall be to seek
injunctive relief.
C. TRANSFER PREMIUMS. If Landlord consents to a Transfer, and as a
condition thereto which the parties hereby agree is; reasonable, Tenant shall
pay Landlord fifty percent (50%) of any Transfer Premium derived by Tenant from
such Transfer. "Transfer Premium" shall mean, for a lease assignment, all
consideration paid or payable therefor. "Transfer Premium" shall mean, for a
sublease, all rent, additional rent or other consideration paid by such
Transferee in excess of the Rent payable by Tenant under this Lease (on a
monthly basis during the Term, and on a per rentable square foot basis, if less
than all of the Premises is transferred). "Transfer Premium" shall also include
so-called "key money," or other bonus amount paid by Transferee to Tenant, and
any payment in excess of fair market value for services rendered by Tenant to
Transferee or in excess of Tenant's depreciated tax basis for assets, fixtures,
inventory, equipment or furniture transferred by Tenant to Transferee. If part
of the consideration for such
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Transfer shall be payable other than in cash, Landlord's share of such non-cash
consideration shall be in such form as is reasonably satisfactory to Landlord.
The percentage of the Transfer Premium due Landlord hereunder shall be paid
within ten (10) days after Tenant receives any Transfer Premium from the
Transferee.
D. RECAPTURE. Notwithstanding anything to the contrary contained in this
Article, Landlord shall have the option, by giving notice to Tenant within
thirty (30) days after receipt of Tenant's notice of any proposed Transfer, to
recapture the Subject Space. Such recapture notice shall cancel and terminate
this Lease with respect to the Subject Space as of the date stated in Tenant's
notice as the effective date of the proposed Transfer (or at Landlord's option,
shall cause the Transfer to be made to Landlord or its agent or nominee, in
which case the parties shall execute reasonable Transfer documentation promptly
thereafter). If this Lease shall be canceled with respect to less than the
entire Premises, the Rent herein shall be prorated on the basis of the number of
rentable square feet retained by Tenant in proportion to the number of rentable
square feet contained in the Premises, this Lease as so amended shall continue
thereafter in full force and effect, and upon request of either party the
parties shall execute written confirmation of the same. Tenant shall surrender
and vacate the Subject Space when required hereunder in accordance with Article
23 and any failure to do so shall be subject to Article 24.
E. TERMS OF CONSENT. If Landlord consents to a Transfer: (i) the terms
and conditions of this Lease, including Tenant's liability for the Subject
Space, shall in no way be deemed to have been waived or modified, (ii) such
consent shall not be deemed consent to any further Transfer by either Tenant or
a Transferee, (iii) no Transferee shall succeed to any rights provided in this
Lease or any amendment hereto to extend the Term of this Lease, expand the
Premises, or lease other space, any such rights being deemed personal to the
initial Tenant, (iv) Tenant shall deliver to Landlord promptly after execution,
an original executed copy of all documentation pertaining to the Transfer in
form reasonably acceptable to Landlord, and (v) Tenant shall furnish a complete
statement, certified by an independent certified public accountant, or Tenant's
chief financial officer, setting forth in detail the computation of any Transfer
Premium that Tenant has derived and shall derive from such Transfer. Landlord or
its authorized representatives shall have the right at all reasonable times to
audit the books, records and papers of Tenant and any Transferee relating to any
Transfer, and shall have the right to make copies thereof. If the Transfer
Premium respecting any Transfer shall be found understated, Tenant shall within
thirty (30) days after demand pay the deficiency, and if understated by more
than two percent (2%) Tenant shall pay Landlord's costs of such audit. Any
sublease hereunder shall be subordinate and subject to the provisions of this
Lease, and if this Lease shall be terminated during the term of any sublease,
Landlord shall have the right to: (a) deem such sublease as merged and canceled
and repossess the Subject Space by any lawful means, or (b) deem such
termination as an assignment of such sublease to Landlord and not as a merger,
and require that such subtenant attorn to and recognize Landlord as its landlord
under any such sublease. If Tenant shall commit a Default under this Lease,
Landlord is hereby irrevocably authorized, as Tenant's agent and
attorney-in-fact, to direct any Transferee to make all payments under or in
connection with the Transfer directly to Landlord (which Landlord shall apply
towards Tenant's obligations under this Lease).
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F. CERTAIN TRANSFERS. For purposes of this Lease, the term "Transfer"
shall also include, and all of the foregoing provisions shall apply to: (i) the
conversion, merger or consolidation of Tenant into a limited liability company
or limited liability partnership, (ii) if Tenant is a partnership or limited
liability company, the withdrawal or change, voluntary, involuntary or by
operation of law, of a majority of the partners or members, or a transfer of a
majority of partnership or membership interests, within a twelve month period,
or the dissolution of the partnership or company, and (iii) if Tenant is a
closely held corporation (i.e., whose stock is not publicly held and not traded
through an exchange or over the counter), the dissolution, merger, consolidation
or other reorganization of Tenant, or within a twelve month period: (a) the sale
or other transfer of more than an aggregate of 50% of the voting shares of
Tenant (other than to immediate family members by reason or gift or death) or
(b) the sale, mortgage, hypothecation or pledge of more than an aggregate of 50%
of Tenant's net assets.
G. AFFILIATE TRANSFERS. Notwithstanding anything to the contrary in this
Article, the initial named Tenant herein may permit the Premises to be used by,
or may sublease the Premises or assign this Lease to any party (herein referred
to as a "Tenant Affiliate") which directly or indirectly: (i) controls or wholly
owns Tenant, (ii) is controlled or wholly owned by Tenant, or (iii) is under
common ownership or control with Tenant; without Landlord's consent, provided:
(a) Landlord shall receive a copy of the executed transfer document (in form
reasonably acceptable to Landlord consistent with this provision) promptly after
execution, (b) Tenant shall remain liable for all of Tenant's obligations under
this Lease, (c) the Transferee shall expressly assume all of Tenant's
obligations under this Lease, and (d) this provision shall not be deemed consent
to any further sublease, assignment or other Transfer. The Transfers described
in this Paragraph G shall not be subject to the provisions of Paragraphs A, B,
C, D and E of this Article 14.
ARTICLE 14: QUIET ENJOYMENT
Landlord agrees that if Tenant timely pays the Rent and performs the
terms and provisions hereunder, Tenant shall hold the Premises during the Term,
free of lawful claims by any party acting by or through Landlord, subject to all
other terms and provisions of this Lease.
ARTICLE 15: LANDLORD'S REMEDIES
A. DEFAULT. The occurrence of any one or more of the following events
shall constitute a "Default" by Tenant and shall give rise to Landlord's
remedies set forth in Paragraph B below: (i) failure to make when due any
payment of Rent, unless such failure is cured within five (5) days after notice;
(ii) failure to observe or perform any term or condition of this Lease other
than the payment of Rent (or the other matters expressly described herein),
unless such failure is cured within any period of time following notice
expressly provided with respect thereto in other Articles hereof, or otherwise
within a reasonable time, but in no event more than twenty (20) days following
notice (provided, if the nature of Tenant's failure is such that more time is
reasonably required in order to cure, Tenant shall not be in Default if Tenant
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commences to cure promptly within such period, diligently seeks and keeps
Landlord reasonably advised of efforts to cure such failure to completion, and
completes such cure within sixty (60) days following Landlord's notice); (iii)
failure to cure immediately upon notice thereof any condition which is
hazardous, interferes with another, party or the operation or leasing of the
Premises, or may cause the imposition of a fine, penalty or other remedy on
Landlord or its agents or affiliates, (iv) violating Article 13 respecting
Transfers, or abandoning, or removing or making arrangements to remove
substantial portions of the furniture or other personal property from the
Premises or any material portion thereof, or (v) (a) making by Tenant or any
guarantor of this Lease ("Guarantor") of any general assignment for the benefit
of creditors, (b) filing by or for reorganization or arrangement under any Law
relating to bankruptcy or insolvency (unless, in the case of a petition filed
against Tenant or such Guarantor, the same is dismissed within thirty (30)
days), (c) appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located in the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days, (d) attachment, execution or other judicial seizure of substantially
all of Tenant's assets located in the, Premises or of Tenant's interest in this
Lease, (e) Tenant's or any Guarantor's convening of a meeting of its creditors
or any class thereof for the purpose of effecting a moratorium upon or
composition of its debts, (f) Tenant's or any Guarantor's insolvency or failure,
or admission of an inability, to pay debts as they mature, or (g) a violation by
Tenant or any affiliate of Tenant under any other lease or agreement with
Landlord or any affiliate thereof which is not cured within the time permitted
for cure thereunder. If Tenant violates the same term or condition of this Lease
on two (2) occasions during any twelve (12) month period, Landlord shall have
the right to exercise all remedies for any violations of the same term or
condition during the next twelve (12) months without providing further notice or
an opportunity to cure. The notice and cure periods provided herein are in lieu
of, and not in addition to, any notice and cure periods provided by Law;
provided, Landlord may elect to comply with such notice and cure periods
provided by Law in lieu of the notice and cure periods provided herein.
B. TERMINATION OF LEASE. If a Default occurs under Article 15.A,
Landlord shall have the right to terminate this Lease, reenter and repossess the
Premises by detainer suit or other lawful means, and recover from Tenant as
damages a sum of money equal to: (a) the worth at the time of award of the
unpaid Rent which had been earned at the time of termination; (b) the worth at
the time of award of the amount by which the unpaid Rent which world have been
earned after termination until the time of the award exceeds the amount of such
Rent loss that Tenant proves could have been reasonably avoided; (c) the worth
at the time of award of the amount by which the unpaid Rent for the balance of
the Term after the time of award exceeds the amount of such Rent loss that
Tenant proves can reasonably be avoided; and (d) any other amounts necessary to
compensate Landlord for all detriment or damages proximately caused by Tenant's
failure to perform its obligations under this Lease or that in the ordinary
course would be likely to result therefrom, including without limitation all
Costs of Reletting (as defined in Article 15). For purposes of computing the
amount of Rent herein that would have accrued after the time of award, Tenant's
obligations for Taxes and Insurance shall be projected based upon the average
rate of increase, if any, in such items from the Commencement Date through the
time of award. The "worth at the time of award" of the amounts referred to in
clauses (a) and (b) shall be computed by allowing interest at the Default Rate
(as defined in Article 31). The "worth at
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the time of award" of the amount referred to in paragraph (c) shall be computed
by discounting such amount in accordance with accepted financial practice at the
rate of seven percent (7%) per annum to the then present value.
C. MITIGATION OF DAMAGES. Landlord shall have the remedies provided
under California Civil Code, Section 1951.4, as the same may be modified or
replaced hereafter (Landlord may continue the Lease in effect after Tenant's
breach and abandonment and recover Rent as it becomes due, if Tenant has right
to sublet or assign subject only to reasonable limitations). If Landlord
terminates this Lease, and Landlord is required to mitigate damages by
applicable Law: (i) Landlord shall be required only, to use reasonable efforts
to mitigate, which shall not exceed such efforts as Landlord generally uses to
lease the Premises, (ii) Landlord will not be deemed to have failed to mitigate
if Landlord or its affiliates lease any other portions of the Premises or other
projects owned by Landlord or its affiliates in the same geographic area, before
reletting all or any portion of the Premises, and (iii) any failure to mitigate
as described herein with respect to any period of time shall only reduce the
Rent and other amounts to which Landlord is entitled hereunder by the reasonable
rental value of the Premises during such period, taking into account the factors
described in clause B(l) above. In recognition that the value of the Premises
depends on the rental rates and terms of leases therein, Landlord's rejection of
a prospective replacement tenant based on an offer of rentals below Landlord's
published rates for new leases of space at the Premises at the time in question,
or at Landlord's option, below the rates provided in this Lease, or containing
terms less favorable than those contained herein, shall not give rise to a claim
by Tenant that Landlord failed to mitigate Landlord's damages.
D. RELETTING. If this Lease is terminated, or Tenant abandons the
Premises, Landlord may: (i) enter and secure the Premises, change the locks,
install barricades, remove any improvements, fixtures or other property of
Tenant therein, perform any decorating, remodeling, repairs, alterations,
improvements or additions and take such other actions as Landlord shall
determine in Landlord's sole discretion to prevent damage or deterioration to
the Premises or prepare the same for reletting, and (ii) relet all or any
portion of the Premises (separately or as part of a larger space), for any rent,
use or period of time (which may extend beyond the Term hereof), and upon any
other terms as Landlord shall determine in Landlord's sole discretion, directly
or as Tenant's agent (if permitted or required by applicable Law). The
consideration received from such reletting shall be applied pursuant to the
terms of Paragraph H hereof, and if such consideration, as so applied, is not
sufficient to cover all Rent and damages to which Landlord may be entitled
hereunder, Tenant shall pay any deficiency to Landlord as the same accrues or
after the same has accrued from time to time upon demand, subject to the other
provisions hereof.
E. SPECIFIC PERFORMANCE, COLLECTION OF RENT AND OTHER REMEDIES. Landlord
shall at all times have the right without prior demand or notice except as
required by applicable Law to: (i) seek any declaratory, injunctive or other
equitable relief, and specifically enforce this Lease or restrain or enjoin a
violation of any provision hereof, and Tenant hereby waives any right to require
that Landlord post a bond or other security in connection therewith, and (ii)
sue for and collect any unpaid Rent which has accrued. The rights and remedies
hereinafter set forth
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in this Article shall be distinct, separate and cumulative with and in addition
to any other right or remedy allowed under any Law or other provision of this
Lease.
F. LATE CHARGES, INTEREST, AND RETURNED CHECKS. Tenant shall pay, as
additional Rent, a service charge of Three Hundred Dollars ($300.00), if any
portion of Rent is not received when due. In addition, any Rent not paid when
due shall accrue interest from the due date at the Default Rate until payment is
received by Landlord. Such service charges and interest payments shall not be
deemed consent by Landlord to late payments, nor a waiver of Landlord's right to
insist upon timely payments at any time, nor a waiver of any remedies to which
Landlord is entitled as a result of the late payment of Rent. If Landlord
receives two (2) or more checks from Tenant which are returned by Tenant's bank
for insufficient funds, Landlord may require that all checks thereafter be bank
certified or cashier's checks (without limiting Landlord's other remedies). All
bank service charges resulting from any returned checks shall be borne by
Tenant.
G. LANDLORD'S CURE OF TENANT DEFAULTS. If Tenant fails to perform any
obligation under this Lease for five (5) days after notice thereof by Landlord
(except that no notice shall be required in emergencies), Landlord shall have
the right (but not the duty), to perform such obligation on behalf and for the
account of Tenant. In such event, Tenant shall reimburse Landlord upon demand,
as additional Rent, for all expenses incurred by Landlord in performing such
obligation together with an amount equal to fifteen (15%) thereof for Landlord's
overhead, and interest thereon at the Default Rate from the date such expenses
were incurred. Landlord's performance of Tenant's obligations hereunder shall
not be deemed a waiver or release of Tenant therefrom.
H. OTHER MATTERS. No re-entry or repossession, repairs, changes,
alterations and additions, reletting, or any other action or omission by
Landlord shall be construed as an election by Landlord to terminate this Lease
or Tenant's right to possession, nor shall the same operate to release Tenant in
whole or in part from any of Tenant's obligations hereunder, unless express
notice of such intention is sent by Landlord to Tenant. Landlord may bring suits
for amounts owed by Tenant hereunder or any portions thereof, as the same accrue
or after the same have accrued, and no suit or recovery of any portion due
hereunder shall be deemed a waiver of Landlord's right to collect all amounts to
which Landlord is entitled hereunder, nor shall the same serve as any defense to
any subsequent suit brought for any amount not therefor reduced to judgment.
Landlord may pursue one or more remedies against Tenant and need not make an
election of remedies until findings of fact are made by a court of competent
jurisdiction. All rent and other consideration paid by any replacement tenants
shall be applied at Landlord's option: (i) first, to the Costs of Reletting,
(ii) second, to the payment of all costs of enforcing this Lease against Tenant
or any Guarantor, (iii) third, to the payment of all interest and service
charges accruing hereunder, (iv) fourth, to the payment of Rent theretofore
accrued, and (v) with the residue, if any, to be held by Landlord and applied to
the payment of Rent and other obligations of Tenant as the same become due (and
with any remaining residue to be remained by Landlord). "Costs of Reletting"
shall include without limitation, all costs and expense s incurred by Landlord
for any repairs or other matters described in Paragraph D above, brokerage
commissions, advertising costs, attorneys' fees, any economic incentives given
to enter leases
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with replacement tenants, and costs of collecting rent from replacement tenants.
Landlord shall be under no obligation to observe or perform any provision of
this Lease on its part to be observed or performed which accrues while Tenant is
in Default hereunder. The times set forth herein for the curing of Defaults by
Tenant are of the essence of this Lease. Tenant hereby irrevocably waives any
right otherwise available under any Law to redeem or reinstate this Lease, or
Tenant's right to possession, after this Lease, or Tenant's right to possession,
is terminated based on a Default by Tenant.
ARTICLE 16: LETTER OF CREDIT AND LANDLORD'S LIENS
A. LETTER OF CREDIT. Tenant shall deposit with Landlord, upon Tenant's
execution and submission of this Lease, a letter of credit (the "Letter of
Credit") in the amount of Five Hundred Thousand and No/100 Dollars
($500,000.00), as security for the prompt, full and faithful performance by
Tenant of the terms and provisions of this Lease, which shall be subject to the
following provisions:
(1) Form and Issuer. The Letter of Credit shall be a clean,
unconditional, stand-by, irrevocable Letter of Credit in favor of Landlord in
substantially the form attached hereto as Exhibit C, issued by a federally
insured national banking association, with a net worth of at least $500,000,000
and which is acceptable to Landlord.
(2) Expiration; Extension or Replacement. The Letter of Credit shall:
(i) have an expiration date no earlier than the Expiration Date of this Lease,
or (ii) be renewed annually through said Expiration Date, in which event Tenant
shall submit to Landlord original amendments extending the Letter, of Credit
expiration date (or replacement Letters of Credit with extended expiration
dates), on an annual basis no later than the date that is thirty (30) days prior
to the expiration date of the Letter of Credit then in effect. Failure to so
extend the expiration date of the Letter of Credit through said Expiration Date
in the foregoing manner shall constitute a violation of this Lease, entitling
Landlord, in addition to all other remedies, to draw down the Letter of Credit
without notice to Tenant and to hold or apply the proceeds thereof as described
herein.
(3) Draws. If Tenant violates this Lease, Landlord may, but shall not be
obligated to, draw down on all or a portion of the Letter of Credit without
notice to Tenant and apply the proceeds to the payment of any sum owing or any
other sum which Landlord may be required or deems necessary to spend or incur by
reason of such violation. If Landlord draws upon the Letter of Credit and any
portion of the proceeds of such draw is not required for such purposes, Landlord
shall hold such unused proceeds as a cash security deposit to be used or applied
in whole or in part for the payment of Tenant's obligations under this Lease.
Tenant shall, upon demand, deposit with Landlord in certified funds an amount
equal to any portion of the Letter of Credit which may be applied by Landlord to
the cure of any violation by Tenant as described hereunder (which funds Landlord
shall hold as a cash security deposit). The use or application of the Letter of
Credit or any portion thereof shall not prevent Landlord from exercising any
other
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right or remedy provided hereunder or under any Law and shall not be construed
as liquidated damages.
B. LIEN. As further security for Tenant's performance under this Lease,
to the extent not expressly prohibited by applicable Law or by any agreement
between Tenant and a secured lender, whether now existing or which Tenant may
enter in the future, Tenant hereby grants Landlord a lien and security, interest
in all existing and after acquired property of Tenant placed in or relating to
Tenant's; business at the Premises, including accounts receivable, insurance
proceeds, good will, contracts, intangibles, fixtures, equipment, inventory,
furnishings and personal property, and all proceeds thereof, and all rents and
other consideration from any Transfer. Notwithstanding the foregoing, Tenant may
use, replace and dispose of such property (provided Tenant immediately replaces
the same with similar property of comparable or better quality), and receive
such rents and consideration, in the ordinary course of Tenant's business, until
such time as Tenant shall commit a Default; upon such Default, Tenant's right to
remove or use such property and receive such rents and other consideration shall
terminate, and all other parties shall be entitled to rely on written
notification thereof given by Landlord without requiring any proof of such
Default or any other matter. Tenant agrees to execute such financing statements,
collateral assignment of rents and subleases,. and other documents necessary to
perfect a security interest, as Landlord may now or hereafter reasonably request
in recordable form. Landlord shall be entitled hereunder to all of the rights
and remedies afforded a secured party under the Uniform Commercial Code or other
applicable Law in addition to any landlord's lien and rights provided by
applicable Law. Notwithstanding the foregoing to the contrary, Landlord agrees
to subordinate Landlord's lien herein to the lien of Tenant's secured lenders
with respect to Tenant's personal property and removable trade fixtures on
Landlord's standard form of lien subordination.
ARTICLE 17: ATTORNEYS' FEES, JURY TRIAL, COUNTERCLAIMS AND VENUE
In the event of any litigation or arbitration between the parties
relating to this Lease or the Premises (including pretrial, trial, appellate,
administrative, bankruptcy or insolvency proceedings), the prevailing party
shall be entitled to recover its attorneys' fees and costs as part of the
judgment, award or settlement therein. If either party or any of its officers,
directors, trustees, beneficiaries, partners, agents, affiliates or employees
shall be made a party to any litigation or arbitration commenced by or against
the other party and is not at fault, the other party shall pay all costs,
expenses and attorneys' fees incurred by such parties in connection with such
litigation. IN THE INTEREST OF OBTAINING A SPEEDIER AND LESS COSTLY HEARING OF
ANY DISPUTE, LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER ARISING OUT
OF OR RELATING TO THIS LEASE OR THE PREMISES. Although such jury waiver is
intended to be self-operative and irrevocable, Landlord and Tenant each further
agree, if requested, to confirm such waivers in writing at the time of
commencement of any such action, proceeding or counterclaim. If Landlord
commences any detainer suit, summary proceedings or other action seeking
possession of the Premises, Tenant agrees not to interpose by consolidation of
actions, removal to chancery
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or otherwise, any counterclaim, claim of set-off, recoupment or deduction of
Rent, or other claim seeking affirmative relief of any kind (except a mandatory
or compulsory counterclaim which Tenant would forfeit if not so interposed). Any
action or proceeding brought by either party against the other for any matter
arising out of or in any way relating to this Lease or the Premises, shall be
heard, at Landlord's option, in the court having jurisdiction located closest to
the Premises.
ARTICLE 18: SUBORDINATION, ATTORNMENT AND LENDER PROTECTION
This Lease is subject and subordinate to all Mortgages now or
hereafter placed upon the Premises, and all other encumbrances and matters of
public record applicable to the Premises. Whether before or after any
foreclosure or power of sale proceedings are initiated or completed by any
Lender or a deed in lieu is granted (or any ground lease is terminated), Tenant
agrees upon written request of any such Lender or any purchaser at such sale, to
attorn and pay Rent to such party, and recognize such party as Landlord
(provided such Lender or purchaser shall agree not to disturb Tenant's occupancy
so long as Tenant does not Default hereunder, on a form customarily used by, or
otherwise reasonably acceptable to, such party). However, in the event of
attornment, no Lender shall be: (i) liable for any act or omission of Landlord,
or subject to any offsets or defenses which Tenant might have against Landlord
(arising prior to such Lender becoming Landlord under such attornment), (ii)
liable for any security deposit or bound by any prepaid Rent not actually
received by such Lender, or (iii) bound by any modification of this Lease not
consented to by such Lender. Any Lender may elect to make this Lease prior to
the lien of its Mortgage by written notice to Tenant, and if the Lender of any
prior Mortgage shall require, this Lease shall be prior to any subordinate
Mortgage; such elections shall be effective upon written notice to Tenant, or
shall be effective as of such earlier or later date set forth in such notice.
Tenant agrees to give any Lender by certified mail, return receipt requested, a
copy of any notice of default served by Tenant upon Landlord, provided that
prior to such notice Tenant has been notified in writing (by way of service on
Tenant of a copy of an assignment of leases, or otherwise) of the address of
such Lender. Tenant further agrees that if Landlord shall have failed to cure
such default within the time permitted Landlord for cure under this Lease, any
such Lender whose address has been provided to Tenant shall have an additional
period of thirty (30) days in which to cure (or such additional time as may be
required due to causes beyond such Lender's control, including time to obtain
possession of the Premises by appointment of receiver, power of sale or judicial
action). Should any current or prospective Lender require a modification or
modifications to this Lease which will not cause an increased cost or otherwise
materially and adversely change the rights and obligations of Tenant hereunder,
Tenant agrees that this Lease shall be so modified. Except as expressly provided
to the contrary herein, the provisions of this Article shall be self-operative;
however Tenant shall execute and deliver, within ten (10) days after requested,
such documentation as Landlord or any Lender may request from time to time,
whether prior to or after a foreclosure or power of sale proceeding is initiated
or completed, a deed in lieu is delivered, or a ground lease is terminated, in
order to further confirm or effectuate the matters set forth in this Article in
recordable form (and Tenant hereby authorizes Landlord acting in good faith to
execute any such documentation as Tenant's agent and attorney-in-fact). Tenant
hereby waives the provisions of any Law (now or hereafter
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adopted) which may give or purport to give Tenant any right or election to
terminate or otherwise adversely affect this Lease or Tenant's obligations
hereunder if foreclosure or power of sale proceedings are initiated, prosecuted
or completed.
ARTICLE 19: ESTOPPEL CERTIFICATES
Tenant shall from time to time, within five (5) days after written
request from Landlord, execute, acknowledge and deliver a statement certifying:
(i) that this Lease is unmodified and in full force and effect or, if modified,,
stating the nature of such modification and certifying that this Lease as so
modified, is in full force and effect (or specifying the ground for claiming
that this Lease is not in force and effect), (ii) the dates to which the Rent
has been paid, and the amount of any Security Deposit, (iii) that Tenant is in
possession of the Premises, and paying Rent on a current basis with no known
offsets, defenses or claims, or specifying the same if any are claimed, (iv)
that there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord or Tenant which are pertinent to the request, or specifying the same if
any are claimed, and (v) certifying such other matters, and including such
current financial statements, as Landlord pay reasonably request, or as may be
requested by Landlord's current or prospective Lenders, insurance carriers,
auditors, and prospective purchasers (and including a comparable certification
statement from any subtenant respecting its sublease). Any such statement may be
relied upon by any such parties. If Tenant shall fail to execute and return such
statement within the time required herein, Tenant shall be deemed to have agreed
with the matters set forth therein, and Landlord acting in good faith shall be
authorized as Tenant's agent and attorney-in-fact to execute such statement on
behalf of Tenant (which shall not be in limitation of Landlord's other
remedies).
ARTICLE 20: RIGHTS RESERVED BY LANDLORD
Except to the extent expressly limited herein, Landlord reserves full
rights to control the Premises (which rights may be exercised without subjecting
Landlord to claims for constructive eviction, abatement of Rent, damages or
other claims of any kind), including more particularly, but without limitation,
the following rights:
A. ACCESS TO PREMISES. Upon prior reasonable notice to Tenant (except
that no notice shall be required in the event of an emergency), and subject to
the provisions of the last sentence of this Paragraph A, Landlord and its
authorized representatives may: (i) inspect the Premises, (ii) exhibit the
Premises to current and prospective tenants, purchasers, Lenders, insurers,
governmental authorities, and brokers, (iii) place upon the Premises or such
other places as may be determined by Landlord "For Sale" and/or "For Rent" signs
or notices at any time, provided such signs may only be placed on the Building
if Tenant shall abandon the Premises, or at any time during the last 180 days of
the Term, (iv) enter or permit entry to the Premises in emergencies or for any
other reasonable purpose, or for the purpose of exercising any other rights or
remedies expressly granted or reserved to Landlord under this Lease or
applicable Law, and (v) in connection therewith, erect scaffolding and temporary
barricades and take into, upon or through the Premises, materials required to
perform the same, and if reasonably required, move
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Tenant's leasehold improvements, fixtures, property and equipment. However, in
connection with entering the Premises to exercise any of the foregoing rights,
Landlord shall take reasonable steps to minimize any interference with Tenant's
business, and following completion of the work, shall return Tenant's leasehold
improvements, fixtures, property and equipment to the original locations and
condition to the fullest extent reasonably possible.
B. RESERVED AREAS. Landlord reserves, and Tenant shall have no right to
use, except as may be expressly provided herein: (i) the roof of the Building,
(ii) exterior portions of the Premises (including, without limitation, outer
walls of the Building), (iii) air rights above the Premises, and (iv) rights to
the land and improvements below the floor of the Premises.
C. EMERGENCY CLOSINGS AND RESTRICTED ACCESS. Landlord shall have the
right (but not the obligation) to take such action or preventive measures deemed
necessary by Landlord, for the safety or the protection of the Premises or other
property located thereon or therein, in case of fire or other casualty, riot or
other civil disorder, strike or labor unrest, public excitement or other
dangerous condition, or threat thereof.
D. INTENTIONALLY DELETED.
E. CHANGES TO THE PREMISES. Upon prior reasonable notice to Tenant
(except that no notice shall be required in the event of an emergency), and
subject to the provisions of the last sentence of this Paragraph E), Landlord
reserves the right to: (i) change the name of the Premises, (ii) install,
maintain, after and remove signs on or about the Premises, (iii) add land,
buildings, easements or other interests to, or sell or eliminate the same from,
the Premises, and grant easements and other interests and rights in the Premises
to other parties, (iv) inspect, repair, maintain, improve, add, alter, expand,
any buildings, structures, improvements, (v) add structural support columns and
shear walls to the Building, and (vi) in connection with the foregoing matters,
or as a result of any casualty, incident, strike, condemnation, act of God, Law
or governmental requirement or request, or any other cause, erect scaffolding,
barricades, and other structures reasonably required in, or otherwise close, the
Premises or portions thereof. However, in connection with exercising such
rights, Landlord shall: (a) take reasonable steps to minimize or avoid any
denial of access to the Premises except when necessary on a temporary basis, (b)
and if Landlord enters the Premises in connection with any of the foregoing
matters, Landlord shall comply with Paragraph A above.
ARTICLE 21: LANDLORD'S RIGHT TO CURE
If Landlord shall fail to perform any obligation under this Lease
required to be performed by Landlord, Landlord shall not be deemed to be in
default hereunder nor subject to any claims for damages of any kind, unless such
failure shall have continued for a period of thirty (30) days after notice
thereof by Tenant (provided, if the nature of Landlord's failure is such that
more time is reasonably required in order to cure, Landlord shall not be in
default if Landlord commences to cure within such period and thereafter
diligently seeks to cure such failure to completion). If Landlord shall default
and fail to cure as provided herein, Tenant shall have such rights and remedies
as may be available to Tenant under applicable Laws, subject to the other
provisions of
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this Lease; provided, except as otherwise expressly provided in this Lease,
Tenant shall have no right of self-help to perform repairs or any other
obligation of Landlord, and shall have no right to withhold, set-off, or abate
Rent, or terminate this Lease, and Tenant hereby expressly waives the benefit of
any Law to the contrary. Notwithstanding anything herein to the contrary, Tenant
shall at all times have the right without prior demand or notice except as
required by applicable Law to: (i) seek any declaratory, injunctive or other
equitable relief, and specifically enforce this Lease or restrain or enjoin a
violation of any provision hereof, and (ii) sue for and collect any unpaid
amounts owing by Landlord to Tenant pursuant to the terms hereof.
ARTICLE 22: INDEMNIFICATION
Tenant shall defend, indemnify and hold Landlord harmless from and
against any and all claims, demands, losses, penalties, fines, fees, charges,
assessments, liabilities, damages, judgments, orders, decrees, actions,
administrative or other proceedings, costs and expenses (including court costs,
attorneys' fees, and expert witness fees), and any diminution in value or loss
or interference with the transfer, use or enjoyment of the Premises or other
property or business or affecting title thereto, howsoever caused, which
directly or indirectly relate to or result wholly or in part from, or are
alleged to relate to or arise wholly or in part from: (i) any violation or
breach of this Lease or applicable Law by any Tenant Parties (as defined below),
(ii) damage, loss or injury to persons,, property or business occurring in,
about or from the Premises, (iii) damage, loss or injury to persons, property or
business directly or indirectly arising out of any Tenant Party's use of the
Premises, or out of any other act or omission of any Tenant Parties. For
purposes of this provision, "Tenant Parties" shall mean Tenant, any other
occupant of the Premises and any of their respective agents, employees,
invitees, Transferees and contractors. Without limiting the generality of the
foregoing, Tenant specifically acknowledges that the Undertaking herein shall
apply to claims in connection with or arising out of any "Work" as described in
Article 9, the transportation, use, storage, maintenance, generation,
manufacturing, handling, disposal, release, discharge, spill or leak of any
"Hazardous Material" as described in Article 29, and violations of Tenant's
responsibilities respecting the Disabilities Acts as described in Article 30
(whether or not any of such matters shall have been theretofore approved by
Landlord). Tenant further acknowledges that the undertaking herein shall not in
any way be limited by the insurance Tenant is required to maintain pursuant to
Article 5 of this Lease. Notwithstanding the foregoing to the contrary, the
foregoing indemnity shall not apply to claims finally determined by a court of
competent jurisdiction to have been caused solely by the gross negligence or
willful misconduct of the party seeking to be indemnified.
ARTICLE 23: RETURN OF POSSESSION
A. CONDITION OF PREMISES AND REMOVAL OF PERSONAL PROPERTY. At the
expiration or earlier termination of this Lease or Tenant's right of possession,
Tenant shall: (a) surrender possession of the Premises in good repair, free of
debris, and otherwise in the condition required under Article 8, and Rule (14)
of Rider One to this Lease, (b) ensure that all signs, movable trade fixtures
and personal property (except items originally provided by Landlord) have been
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repmoved from the Premises (subject to Article 16), and (c) ensure that any
damage caused by such removal has been repaired in a good and workmanlike manner
(and Landlord may deny permission to remove items where such removal may damage
the structural integrity of the Building). For purposes of this Lease, Tenant's
"movable trade fixtures and personal property" shall include display cabinets,
clean room, cafeteria/kitchen equipment and such other items as are hereafter
mutually identified in writing by Landlord and Tenant.
B. REMOVAL OF LEASEHOLD IMPROVEMENTS. At Landlord's option, all
leasehold improvements and other non-trade fixtures, equipment, systems and
decorations for the Premises, whether installed by Tenant or Landlord, shall be
Landlord's property and shall remain, all without compensation, allowance or
credit to Tenant. The term "leasehold improvements and non-trade fixtures" shall
include, without limitation, light fixtures, electrical wiring and panels, HVAC
equipment, plumbing fixtures, hot water heaters, fire suppression and sprinkler
systems, wall coverings, drapes, blinds or other window treatments, carpeting,
refrigeration systems, vaults, special storefronts, overhead truck doors,
cabinets, shelves, bins, millwork, paneling and other finish work, interior
drainage systems, dock boards, dock revelers and dock bumpers, security gates
and fences. However, if prior to termination of this Lease or within three (3)
months thereafter Landlord so directs by notice, Tenant shall promptly remove
such of the foregoing items (together with any and all other leasehold
improvements and non-trade fixtures and other items as may have been installed
by or for Tenant or Guarantor as subtenants under the Existing Lease [as defined
in Article 2.D above] or by or for Tenant or Guarantor as subtenants under any
other prior lease or sublease for any portion of the Premises) as are designated
in such notice, repair any damage to the Premises caused by such removal in a
good and workmanlike manner, and restore such areas of the Premises to the
condition prior to the installation of such items.
C. ABANDONED PROPERTY. If Tenant shall fail to perform any repairs or
restoration, or fail to remove any items from the Premises as required
hereunder, Landlord may do so at Tenant's expense as provided in Article 21 and
Tenant shall pay Landlord's charges therefor upon demand. All property removed
from the Premises by Landlord hereunder may be handled, discarded or stored by
Landlord at Tenant's expense, and Landlord shall in no event be responsible for
the value, preservation or safekeeping thereof. All such property shall at
Landlord's option be conclusively deemed to have been conveyed by Tenant to
Landlord as if by bill of sale without payment by Landlord. If Landlord arranges
for storage of any such property, Landlord shall have a lien against such
property for costs incurred in removing and storing the same.
ARTICLE 24: HOLDING OVER
Unless Landlord expressly agrees otherwise in writing, Tenant shall
pay Landlord 175% for the first thirty (30) days and 200% thereafter of the
amount of Rent then in effect immediately prior to expiration or earlier
termination of this Lease, computed on a monthly basis for each month or portion
thereof that Tenant shall fail to vacate or surrender possession of the Premises
or any part thereof after expiration or earlier termination of this Lease
strictly in
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accordance with and as required under Article 23, together with all damages
(direct and consequential) sustained by Landlord on account thereof. Tenant
shall pay such amounts on demand, and, in the absence of demand, monthly in
advance. In addition, at any time before or after expiration or earlier
termination of this Lease while Tenant remains in possession, Landlord may
elect, by written notice and not otherwise, to have such retention of possession
constitute an extension of the Term on a month-to-month basis on all of the same
terms in effect under the Lease immediately prior to such holding over. The
foregoing provisions, and Landlord's acceptance of any such amounts, shall not
serve as permission for Tenant to hold-over, nor serve to extend the Term,
except on such month-to-month basis as may be elected by Landlord (although
Tenant shall remain bound to comply with all provisions of this Lease until
Tenant properly vacates the Premises, including compliance with all of the
provisions of Article 23). Landlord shall have the right at any time after
expiration or earlier termination of this Lease or Tenant's right to possession
to reenter and possess the Premises and remove all property and persons
therefrom, and Landlord shall have such other remedies for holdover as may be
available to Landlord under other provisions of this Lease or applicable Laws.
ARTICLE 25: NOTICES
Except as expressly provided to the contrary in this Lease, every
notice or other communication to be given by either party to the other with
respect hereto or to the Premises, shall be in writing and shall not be
effective for any purpose unless the same shall be served personally or by
national air courier service, or United States certified mail, return receipt
requested, postage prepaid, to the parties at the addresses set forth in Article
1, or such other address or addresses as Tenant or Landlord may from time to
time designate by notice given as above provided. Every notice or other
communication hereunder shall be deemed to have been given as of the third
business day following the date of such mailing (or as of any earlier date
evidenced by a receipt from such national air courier service or the United
States Postal Service) or immediately if personally delivered. Notices not sent
in accordance with the foregoing shall be of no force or effect until received
by the foregoing parties at such addresses required herein.
ARTICLE 26: REAL ESTATE BROKERS
Tenant represents that Tenant has dealt only with the Brokers
designated in Article 1 (whose commission, if any, shall be paid by Landlord
pursuant to separate agreement) as brokers, agents or finders in connection with
this Lease, and agrees to indemnify and hold Landlord harmless from all damages,
judgments, liabilities and expenses (including reasonable attorneys' fees)
arising from any claims or demands of any other broker, agent or finder with
whom Tenant has dealt for any commission or fee alleged to be due in connection
with its participation in the procurement of Tenant or the negotiation with
Tenant of this Lease.
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ARTICLE 27: NO WAIVER
No provision of this Lease will be deemed waived by either party
unless expressly waived in writing and signed by the waiving party. No waiver
shall be implied by delay or any other act or omission of either party. No
waiver by either party of any provision of this Lease shall be deemed a waiver
of such provision with respect to any subsequent matter relating to such
provision, and Landlord's consent or approval respecting any action by Tenant
shall not constitute a waiver of the requirement for obtaining Landlord's
consent or approval respecting any subsequent action. Acceptance of Rent by
Landlord directly or through any agent or lock-box arrangement shall not
constitute a waiver of any breach by Tenant of any term or provision of this
Lease (and Landlord reserves the right to return or refund any untimely payments
if necessary to preserve Landlord's remedies). No acceptance of a lesser amount
of Rent shall be deemed a waiver of Landlord's right to receive the full amount
due, nor shall any endorsement or statement on any check or payment or any
letter accompanying such check or payment be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the full amount due. The acceptance of Rent or of the
performance of any other term or provision from, or providing directory listings
or services for, any Person other than Tenant shall not constitute a waiver of
Landlord's right to approve any Transfer. No delivery to, or acceptance by,
Landlord or its agents or employees of keys, nor any other act or omission of
Tenant or Landlord or their agents or employees, shall be deemed a surrender, or
acceptance of a surrender, of the Premises or a termination of this Lease,
unless stated expressly in writing by Landlord.
ARTICLE 28: SAFETY AND SECURITY DEVICES, SERVICES AND PROGRAMS
The risk that any safety or security device, service or program may not
be effective, or may malfunction, or be circumvented by a criminal, is assumed
by Tenant with respect to the Premises and Tenant's property and interests, and
Tenant shall obtain insurance coverage to the extent Tenant desires protection
against such criminal acts and other losses, as further described in Article 5.
Tenant agrees to cooperate in any reasonable safety or security program
developed by Landlord or required by Law for the Premises.
ARTICLE 29: HAZARDOUS MATERIALS
A. HAZARDOUS MATERIALS GENERALLY PROHIBITED. Tenant shall not transport,
use, store, maintain, generate, manufacture, handle, dispose, release,
discharge, spill or leak any "Hazardous Material" (as defined below), or permit
Tenant's employees, agents, contractors, or other occupants of the Premises to
engage in such activities on or about the Premises. However, the foregoing
provisions shall not prohibit the transportation to and from, and use, storage,
maintenance and handling within, the Premises of substances customarily and
lawfully used in the business which Tenant is permitted to conduct in the
Premises under this Lease, but only as an incidental and minor part of such
business, and provided: (i) such substances shall be properly labeled,
contained, used and stored only in small quantities reasonably necessary for
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such permitted use of the Premises and the ordinary course of Tenant's
business therein, strictly in accordance with applicable Laws, highest
prevailing standards, and the manufacturers' instructions therefor, and as
Landlord shall reasonably require, (ii) Tenant shall provide Landlord with ten
(10) days advance notice and current Material Safety Data Sheets ("MSDSs")
therefor, and Landlord reserves the right to prohibit or limit such substances
in each such instance, (iii) such substances shall not be disposed of, released,
discharged or permitted to spill or leak in or about the Premises (and under no
circumstances shall any Hazardous Material be disposed of within the drains or
plumbing facilities in or serving the Premises or in any other public or private
drain or sewer, regardless of quantity or concentration), (iv) if any applicable
Law or Landlord's trash removal contractor requires that any such substances be
disposed of separately from ordinary trash, Tenant shall make arrangements at
Tenant's expense for such disposal in approved containers directly with a
qualified and licensed disposal company at a lawful disposal site, (v) any
remaining such substances shall be completely, properly and lawfully removed
from the Premises upon expiration or earlier termination of this Lease, and (vi)
for purposes of removal and disposal of any such substances, Tenant shall be
named as the owner, operator and generator, shall obtain a waste generator
identification number, and shall execute all permit applications, manifests,
waste characterization documents and any other required forms.
B. NOTIFICATIONS. Tenant shall immediately notify Landlord of: (i) any
inspection, enforcement, cleanup or other regulatory action taken or threatened
by any regulatory authority with respect to any Hazardous Material on or from
the Premises or the migration thereof from or to other property, (ii) any
demands or claims made or threatened by any party relating to any loss or injury
claimed to have resulted from any Hazardous Material on or from the Premises,
(iii) any release, discharge, spill, leak, migration, disposal or transportation
of any Hazardous Material on or from the Premises in violation of this Article,
and any damage, loss or injury to persons, property or business resulting or
claimed to have resulted therefrom, and (iv) any matters where Tenant is
required by Law to give a notice to any regulatory authority respecting any
Hazardous Material on or from the Premises. Landlord shall have the right (but
not the obligation) to notify regulatory authorities concerning actual and
claimed violations of this Article, and to join and participate, as a party, in
any legal proceedings or actions affecting the Premises and concerning Hazardous
Materials or otherwise initiated in connection with any environmental, health or
safety Law.
C. HAZARDOUS MATERIAL QUESTIONNAIRE. Tenant hereby certifies that it has
completely and accurately filled out and signed the form of Hazardous Materials
Questionnaire ("Hazardous Materials Questionnaire") attached hereto as Exhibit
B. At such times as Landlord may reasonably request, Tenant shall accurately and
completely fill out, sign (and certify to be accurate and complete) and return
Landlord's then current form of which may be the same or similar to the form
attached hereto or which may otherwise require that Tenant: (i) identify,
describe and list quantities of any Hazardous Materials that have been
transported to or from, used, stored, generated, handled, maintained, disposed,
released, discharged, spilled, leaked or migrated in or from the Premises since
the Commencement Date or the last such Hazardous Materials Questionnaire, and
any such activity that is anticipated during the next twelve (12) months, (ii)
provide information concerning past, present and anticipated disposal practices,
storage tanks, process tanks, dip tanks, waste management practices, waste water
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discharge/treatment practices, air discharges, regulatory actions, and such
other information as Landlord requires, and (iii) include copies of any material
safety data sheets ("MSDS") issued by the manufacturer, distributor or importer
for any such Hazardous Materials. Landlord shall generally not require such
Environmental Questionnaires more than once per year, except if required by Law
or a Lender, or in connection with a proposed sale or financing of the Premises,
or if based on Tenant's answers to any prior Environmental Questionnaire or an
inspection of the Premises, or if Landlord determines that more frequent
Environmental Questionnaires are reasonably required.
D. HAZARDOUS MATERIALS RECORDS; INSPECTIONS, TESTS AND STUDIES. Tenant
shall immediately upon written request from time to time provide Landlord with
copies of all permits, approvals, memos, reports, correspondence, complaints,
demands, claims, subpoenas, requests, feasibility and impact studies, storage
and management plans, business plans, remediation and cleanup plans, closure
plans, documentation evidencing that a clean-up or other action required
hereunder has been properly and lawfully completed, and all papers of any kind
filed with or by any regulatory authority and any other books, records or items
pertaining to Hazardous Materials that are subject to the provisions of this
Article (collectively referred to herein as "Tenant's Hazardous Materials
Records"). Landlord reserves the right to conduct, and to request that
regulatory authorities conduct, from time to time, detailed inspections, tests
and studies at or respecting the Premises, and of Tenant's operations therein
including, without limitation, air, soil, water and the contents of any cans,
bottles, jars, drums, barrels or other containers, and Tenant's Hazardous
Materials Records, respecting Tenant's compliance with this Article. In
connection therewith, Tenant shall fully cooperate and shall instruct Tenant's
officers and employees to answer all question truthfully and completely. Such
inspections, tests and studies may be made with reasonable prior notice (except
in emergencies or in case of repeated violations). If Landlord or any Lender or
regulatory authority arranges for any inspections, tests or studies showing this
Article has been violated, or otherwise in connection with any request by Tenant
for permission to engage in any activity or to waive any requirement involving
Hazardous Materials, Tenant shall pay for the cost of such inspections, tests
and studies and an amount equal to fifteen percent (15%) of such cost to cover
Landlord's overhead in connection therewith.
E. CLEAN UP RESPONSIBILITY. If any Hazardous Material is released,
discharged or disposed of, or permitted to spill, leak or migrate, in violation
of the foregoing provisions, Tenant shall immediately, properly and in
compliance with applicable Laws, clean up and remove the hazardous Material from
the Premises and any other affected property and clean or replace any affected
personal property (whether or not owned by Landlord), at Tenant's expense
(without limiting Landlord's other remedies therefor). Such clean up and removal
work shall be considered "Work" under Article 9 and subject to the provisions
thereof including, without limitation, Landlord's prior written approval (except
in emergencies), and any testing, investigation, feasibility and impact studies,
and the preparation and implementation of any remedial action plan required by
any court or regulatory authority having jurisdiction or reasonably required by
Landlord. If any Hazardous Material is released, discharged, disposed of, or
permitted to spill, leak or migrate on or about the Premises and is not caused
by Tenant or other occupants of the Premises, or their agents, employees,
Transferees, or contractors, such release, discharge, disposal, spill, leak or
migration shall be deemed casualty damage under
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Article 11 to the extent that the Premises and Tenant's use thereof is affected
thereby; in such case, Landlord and Tenant shall have the obligations; and
rights respecting such casualty damage provided under such Article. If any
Hazardous Material contamination is discovered on or about the Premises before
Tenant begins occupying or performing work at the Premises, there shall be a
rebuttable presumption that Tenant is not responsible; if any Hazardous Material
contamination is discovered on or about the Premises after Tenant begins
occupying or performing work at the Premises, and the contamination is located
in the Premises, there shall be a rebuttable presumption that Tenant is
responsible.
F. STORAGE TANKS AND PONDS. Tenant shall not install or use storage
tanks on or about the Premises (whether under, on or above ground) without
Landlord's prior written consent, which consent may be withheld in Landlord's
sole discretion. Tenant shall not engage in or permit ponding or surface storage
or treatment of Hazardous Materials under any circumstances. If Landlord permits
Tenant to install or use a storage tank, Tenant shall comply with all applicable
Laws in connection therewith, and at Landlord's request shall properly and
lawfully remove such tank upon expiration or earlier termination of this Lease
(or sooner if such tank is found to leak or removal is required by applicable
Laws) in accordance with removal procedures approved by Landlord in advance in
writing.
G. HAZARDOUS MATERIAL DEFINED. The term "Hazardous Material" for
purposes hereof shall include, but not be limited to: (i) any flammable,
explosive, toxic, radioactive, biological, corrosive or otherwise hazardous
chemical, substance, liquid, gas, device, form of energy, material or waste or
component thereof, (ii) petroleum-based products, diesel fuel, paints, solvents,
lead, radioactive materials, cyanide, biohazards, infectious or medical waste
and "sharps", printing inks, acids, DDT, pesticides, ammonia compounds, and any
other items which now or subsequently are found to have an adverse effect on the
environment or the health and safety of persons or animals or the presence of
which require investigation or remediation under any Law or governmental policy,
and (iii) any item defined as a "hazardous substance", "hazardous material",
"hazardous waste", "regulated substance" or "toxic substance" under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq., Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., Resource Conservation and Recovery Act of
1976, 42 U.S.C. Section 6901 et seq., Clean Water Act, 33 U.S.C. Section 1251,
et seq., Safe Drinking Water Act, 14 U.S.C. Section 300f, et seq., Toxic
Substances Control Act, 15 U.S.C. Section 2601, et seq., Atomic Energy Act of
1954, 42 U.S.C. Section 2014 et seq., and any similar federal, state or local
Laws, and all regulations, guidelines, directives and other requirements
thereunder, all as may be amended or supplemented from time to time.
H. FEES, TAXES, FINES AND REMEDIES. Tenant shall pay, prior to
delinquency, any and all fees, taxes (including excise taxes), penalties and
fines arising from or based on Tenant's activities involving Hazardous Material
on or about the Premises, and shall not allow such obligations to become a lien
or charge against the Premises or Landlord. If Tenant violates any provision of
this Article with respect to any Hazardous Materials, Landlord may: (i) require
that Tenant immediately remove all Hazardous Materials from the Premises and
discontinue using, storing and handling Hazardous Materials in the Premises,
and/or (ii) pursue such other remedies as may be available to Landlord under
this Lease or applicable Law.
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ARTICLE 30: DISABILITIES ACTS
The parties acknowledge that the Americans With Disabilities Act of 1990
(42 U.S.C. Section 2101 et seq.) and regulations and guidelines promulgated
thereunder ("ADA"), and any similarly motivated state and local Laws ("Local
Barriers Acts"), as the same may be amended and supplemented from time to time
(collectively referred to herein as the "Disabilities Acts") establish
requirements for business operations, accessibility and barrier removal, and
that such requirements may or may not apply to the Premises depending on, among
other things: (i) whether Tenant's business is deemed a "public accommodation"
or "commercial facility", (ii) whether such requirements are "readily
achievable", and (iii) whether a given alteration affects a "primary function
area" or triggers "path of travel" requirements. The parties hereby agree that
Tenant shall perform any required ADA Title III and related Local Barriers Acts
compliance in the Premises. Tenant shall also be responsible for ADA Title I and
related Local Barriers Acts requirements relating to Tenant's employees, and
Landlord shall be responsible for ADA Title I and related Local Barriers Acts
requirements relating to Landlord's employees.
ARTICLE 31: DEFINITIONS
(A) "Building" shall have the meaning specified therefor in
Article 1.
(B) "Default Rate" shall mean eighteen percent (18%) per annum,
or the highest rate permitted by applicable Law, whichever shall be less.
(C) "HVAC" shall have the meaning specified therefor in Article
6.
(D) "Insurance" shall have the meaning specified therefor in
Article 5.
(E) "Landlord" shall mean only the landlord from time to time,
except for purposes of any provisions defending, indemnifying and holding
Landlord harmless hereunder, "Landlord" shall include past, present and future!
landlords and their respective partners, beneficiaries, trustees, officers,
directors, employees, shareholders, principals, agents, affiliates, successors
and assigns.
(F) "Law" or "Laws" shall mean all federal, state, county and
local governmental and municipal laws, statutes, ordinances, rules, regulations,
codes, decrees, orders and other such requirements, applicable equitable
remedies and decisions by courts in cases where such decisions are considered
binding precedents in the State in which the Premises is located, and decisions
of federal courts applying the Laws of such State, at the time in question. This
Lease shall be interpreted and governed by the Laws of the State in which the
Premises is located.
(G) "Lender" shall mean the holder of any Mortgage at the time in
question, and where such Mortgage is a ground lease, such term shall refer to
the ground lessor (and the
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<PAGE> 39
term "ground lease" although not separately capitalized is intended through out
this Lease to include any superior or master lease).
(H) "Mortgage" shall mean all mortgages, deeds of trust, ground
leases and other such encumbrances now or hereafter placed upon the Premises, or
any part thereof, and all renewals, modifications, consolidations, replacements
or extensions thereof, and all indebtedness now or hereafter secured thereby,
and all interest thereon.
(I) "Person" shall mean an individual, trust, partnership,
limited liability company, joint venture, association, corporation and any other
entity.
(J) "Premises" shall mean the area identified in Article 1 and
Exhibit A.
(K) Intentionally Deleted.
(L) Intentionally Deleted.
(M) "Rent" shall have the meaning specified therefor in Article
3.
(N) "Tenant" shall be applicable to one or more Persons as the
case may be, the singular shall include the plural, and if there be more than
one Tenant, the obligation is thereof shall be joint and several. When used in
the lower case, "tenant" shall mean any other tenant, subtenant or occupant of
the Premises. "Tenant" shall include the party identified in Article l.M hereof
and any Tenant Affiliate described in Article 13.G hereof.
ARTICLE 32: OFFER
The submission and negotiation of this Lease shall not be deemed an
offer to enter the same by Landlord (nor an option or reservation for the
Premises), but the solicitation of such an offer by Tenant. No lease or
obligation on either Landlord or Tenant shall arise until this Lease is signed
and delivered by Landlord and Tenant.
ARTICLE 33: MISCELLANEOUS
A. CAPTIONS AND INTERPRETATION. The captions of the Articles and
Paragraphs of this Lease, and any computer highlighting of changes from earlier
drafts, are for convenience of reference only and shall not be considered or
referred to in resolving questions of interpretation. Tenant acknowledges that
it has read this Lease and that it has had the opportunity to confer with
counsel in negotiating this Lease; accordingly, this Lease shall be construed
neither for nor against Landlord or Tenant, but shall be given a fair and
reasonable interpretation in accordance with the meaning of its terms. The
neuter shall include the masculine and feminine, and the singular shall include
the plural. The term "including" shall be interpreted to mean "including, but
not limited to."
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B. SURVIVAL OF PROVISIONS. All obligations (including indemnity, Rent
and other payment obligations) or rights of either party arising during or
attributable to the period prior to expiration or earlier termination of this
Lease shall survive such expiration or earlier termination.
C. SEVERABILITY. If any term or provision of this Lease or portion
thereof shall be found invalid, void, illegal, or unenforceable generally or
with respect to any particular party, by a court of competent jurisdiction, it
shall not affect, impair or invalidate any other terms or provisions or the
remaining portion thereof, or its enforceability with respect to any other
party.
D. INTENTIONALLY DELETED.
E. SHORT FORM LEASE. Neither this Lease nor any memorandum of lease or
short form lease shall be recorded by Tenant, but Landlord or any Lender may
elect to record a short form of this Lease, in which case Tenant shall promptly
execute, acknowledge and deliver the same or a form prepared by Landlord or such
Lender.
F. LIGHT, AIR AND OTHER INTERESTS. This Lease does not grant any legal
rights to "light and air" outside the Premises nor any particular view visible
from the Premises, nor any easements, licenses or other interests unless
expressly contained in this Lease.
G. AUTHORITY. Tenant and all Persons signing for Tenant below, and
Landlord and all Persons signing for Landlord below, hereby represent that this
Lease has been fully authorized and no further approvals are required, and that
Landlord and Tenant are duly organized, in good standing and legally qualified
to do business in the Building and Premises (and have any required certificates,
licenses, permits and other such items).
H. PARTNERSHIP TENANT. If Tenant is a partnership, all current and new
general partners shall be jointly and severally liable for all obligations of
Tenant hereunder and as this Lease may hereafter be modified, whether such
obligations accrue before or after admission of future partners or after any
partners die or leave the partnership. Tenant shall cause each new partner to
sign and deliver to Landlord written confirmation of such liability, in form and
content satisfactory to Landlord, but failure to do so shall not avoid such
liability.
I. FINANCIAL STATEMENTS. Tenant shall, within ten (10) days after
requested from time to time, deliver to Landlord financial statements (including
balance sheets and income/expense statements) for Tenant's then most recent full
and partial fiscal year preceding such request, certified by an independent
certified public accountant or Tenant's chief financial officer, in form
reasonably satisfactory to Landlord.
J. SUCCESSORS AND ASSIGNS; TRANSFER OF PREMISES AND SECURITY DEPOSIT.
Each of the terms and provisions of this Lease shall be binding upon and inure
to the benefit of the parties' respective heirs, executors, administrators,
guardians, custodians, successors and assigns, subject to Article 13 respecting
Transfers and Article 18 respecting rights of Lenders. Subject to Article 18, if
Landlord shall convey or transfer the Premises to another party, such party
shall thereupon be and become landlord hereunder and shall be deemed to have
fully assumed all of Landlord's obligations under this Lease accruing during
such party's ownership, including the
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return of any Security Deposit (provided Landlord shall have turned over such
Security Deposit to such party), and Landlord shall be free of all such
obligations accruing from and after the date of conveyance or transfer.
K. LIMITATION OF LIABILITY. Tenant agrees to look solely to Landlord's
interest in the Premises for the enforcement of any judgment, award, order or
other remedy under or in connection with this Lease or any related agreement,
instrument or document or for any other matter whatsoever relating thereto or to
the premises. under no circumstances shall any present or future, direct or
indirect, principals or investors, general or limited partners, officers,
directors, shareholders, trustees, beneficiaries, participants, advisors,
managers, employees, agents or affiliates of Landlord, or of any of the other
foregoing parties, or any of their heirs, successors or assigns have any
liability for any of the foregoing matters. Under no circumstances shall any
present or future, direct or indirect, principals or investors, general or
limited partners, officers, directors, shareholders, trustees, beneficiaries,
participants, advisors, managers, employees, agents or affiliates of Tenant
(other than a Tenant Affiliate described in Article 13.G hereof), or of any of
the other foregoing parties, or any of their heirs, successors or assigns have
any liability for the enforcement of any judgment, award, or other remedy under
or in connection with this Lease or any related agreement, instrument or
document or for any other matter whatsoever relating thereto or to the Premises.
L. CONFIDENTIALITY. Tenant shall keep the content and all copies of this
Lease, related documents or amendments now or hereafter entered, and all
proposals, materials, information and matters relating thereto strictly
confidential, and shall not disclose, disseminate or distribute any of the same,
or permit the same to occur, except to the extent reasonably required for proper
business purposes by Tenant's employees, attorneys, insurers, auditors, lenders
and Transferees (and Tenant shall obligate any ,such parties to whom disclosure
is permitted to honor the confidentiality provisions hereof), and except as may
be required by Law or court proceedings.
ARTICLE 34: IMPROVEMENT ALLOWANCE
Landlord shall provide an improvement allowance ("Improvement
Allowance") for Tenant of up to $200,000.00 as reimbursement toward costs
approved by Landlord and incurred by Tenant in making any improvements to the
Premises in preparation for Tenant's occupancy of the Premises (excluding
furniture, fixtures and equipment), which improvements shall otherwise be made
in accordance with all terms, covenants and conditions of this Lease, including,
but not limited to, the provisions of Article 9. Landlord shall pay the
Improvement Allowance to Tenant within thirty (30) days after the following
events have occurred: (i) Tenant shall have provided Landlord with paid invoices
and other evidence of such costs as Landlord shall reasonably require, (ii)
Tenant shall have provided Landlord with appropriate affidavits, sworn
statements and lien waivers, and Landlord shall have approved the same, and
(iii) Tenant shall have faithfully complied with this Lease and shall not be in
Default. Any portion of the Improvement Allowance not used for the purposes
permitted herein, or for which Landlord has not received evidence of the costs
thereof as provided herein within ninety (90) days after the Commencement
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Date, shall belong to Landlord, and Tenant shall receive no credit therefor. If
Tenant shall Default under this Lease following Landlord's payment of the
Improvement Allowance, Tenant shall immediately pay Landlord the unamortized
amount theretofor paid hereunder (such amortization to be computed on a straight
line basis over the number of full calendar months in the initial Term hereunder
following such payment with interest at the Default Rate).
ARTICLE 35: ENTIRE AGREEMENT
This Lease, together with the Riders, Exhibits and other documents
listed in Article 1 (WHICH COLLECTIVELY ARE HEREBY INCORPORATED WHERE REFERRED
TO HEREIN AND MADE A PART HEREOF AS THOUGH FULLY SET FORTH), contains all the
terms and provisions between Landlord and Tenant relating to the matters set
forth herein and no prior or contemporaneous agreement or understanding
pertaining to the same shall be of any force or effect, except any such
contemporaneous agreement specifically referring to and modifying this Lease,
signed by both parties. Without limitation as to the generality of the
foregoing, Tenant hereby acknowledges and agrees that Landlord's leasing agents
and field personnel are only authorized to show the Premises and negotiate terms
and conditions for leases subject to Landlord's final approval, and are not
authorized to make any agreements, representations, understandings or
obligations, binding upon Landlord, respecting the condition of the Premises,
suitability of the same for Tenant's business, the current or future amount of
Taxes or Insurance or any component thereof, the amount of rent or other terms
applicable under other leases at the Premises, whether Landlord has furnished
the same utilities or services to other tenants at all, on the same level or on
the same basis, or any other matter, and no such agreements, representations,
understandings or obligations not expressly contained herein or in such
contemporaneous agreement shall be of any force or effect. TENANT HAS RELIED ON
TENANT'S INSPECTIONS AND DUE DILIGENCE IN ENTERING THIS LEASE, AND NOT ON ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE HABITABILITY,
CONDITION OR SUITABILITY OF THE PREMISES FOR ANY PARTICULAR PURPOSE OR ANY OTHER
MATTER NOT EXPRESSLY CONTAINED HEREIN. Neither this Lease, nor any Riders or
Exhibits referred to above may be modified, except in writing signed by both
parties.
IN WITNESS WHEREOF, the parties have executed this Lease as of the
date first set forth above.
LANDLORD: MILPITAS OAK CREEK DELAWARE, INC.,
a Delaware corporation
By: /s/ Authorized Signatory
--------------------------------
Its: Authorized Signatory
--------------------------------
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Its: Authorized Signatory
--------------------------------
TENANT: MAXTOR CORPORATION,
a Delaware corporation
By: /s/ Paul J. Tufano
--------------------------------
Name Typed: Paul J. Tufano
--------------------------------
Title: Vice President Finance and
--------------------------------
Chief Financial Officer
--------------------------------
CERTIFICATE
I, Carlotta Barr-Smith, as Assistant Secretary of the aforesaid Tenant,
hereby certify that the individual(s) executing the foregoing Lease on behalf of
Tenant was/were duly authorized to act in his/their capacities as set forth
above, and his/their action(s) are the action of Tenant.
/s/ C. Barr-Smith
-----------------------------
Corporate Seal
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GUARANTY
THIS GUARANTY is made as of the __________ day of October, 1997, by
HYUNDAI ELECTRONICS AMERICA, a California corporation ("Guarantor") in favor of
MILPITAS OAK CREEK DELAWARE, INC., a Delaware corporation ("Landlord").
RECITALS
A. Maxtor Corporation. a Delaware e corporation ("Tenant") is desirous
of entering into that certain Single Tenant Net Lease (the "Lease"), of even
date herewith, or bearing a reference date which may or may not coincide with
the reference date set forth above, with Landlord relating to that certain
parcel of real property comprising approximately 13.43 acres and having a common
address of 510 and 530 Cottonwood Drive, Milpitas, California, more particularly
described on Exhibit A to the Lease, together with the building thereon (the
"Building") containing approximately 180,086 rentable square feet (the
"Premises").
B. Guarantor has represented to Landlord that Guarantor has an ownership
or affiliate interest in Tenant, and has requested that Landlord enter into the
Lease.
C. Landlord has declined to enter into the Lease unless Guarantor
guarantees the Lease as provided herein.
NOW, THEREFORE, in consideration of the foregoing recitals and to induce
Landlord to enter the Lease, Guarantor hereby agrees as follows:
1. Unconditional Guaranty. Guarantor unconditionally and irrevocably
guarantees to Landlord and the successors and assigns of Landlord the full and
punctual payment, performance and observance by Tenant of all the terms,
covenants and conditions in the Lease to be kept, performed or observed by
Tenant. Without limiting the foregoing, Guarantor guarantees the performance or
payment of any liability of Tenant which shall accrue under the Lease for any
period preceding as well as any period following the term of the Lease. If, at
any time, Tenant shall default in the performance or observance of any of the
terms, covenants, or conditions in the Lease to be kept, performed or observed
by Tenant, including, without limitation, the payment of any Rent. Additional
Rent or other charge, Guarantor will keep, perform and observe the same, as the
case may be, in place and stead of Tenant.
2. Waiver of Notice; No Release of Liability. Guarantor hereby waives
acceptance and notice of acceptance of this Guaranty, notice of non-payment,
nonperformance or non-observance, notices of the existence, creation or
incurring of new or additional obligations, and all other notices and all proofs
or demands. Any consent of Landlord or its successors or assigns to any manner
or thing relating to the Lease, or the granting of any indulgences or extensions
of time to Tenant, may be done without any notice to Guarantor and without
releasing obligations of Guarantor hereunder. The obligations of Guarantor
hereunder shall not be released by Landlord's receipt, application or release of
security given for the performance and
<PAGE> 45
observance of covenants and conditions in the Lease to be performed or observed
by Tenant, or by any Modifications of the Lease. The liability of Guarantor
hereunder shall in no way be affected by (a) the release or discharge of Tenant
in any creditors, receivership, bankruptcy or other proceedings; (b) the
impairment, limitation or modification of liability of Tenant or the estate or
Tenant in bankruptcy, or of any remedy for the enforcement of Tenant's liability
under the Lease resulting from the operation of any present or future provision
of the Federal Bankruptcy Code or other statute or from the decision in any
court; (c) the rejection or disaffirmance of the Lease in any such proceedings;
(d) the assignment or transfer of, or sublease under, the Lease by Tenant; (e)
any disability or other defense of Tenant; (f) the cessation from any cause
whatsoever of the liability of Tenant; or (g) the exercise by Landlord of any
rights or remedies reserved to Landlord under the Lease, provided or permitted
by law or by reason of any termination of the Lease.
3. Assignment or Amendment of Lease; Extensions and Renewals. Any
sublease under, or assignment of, the Lease by Tenant shall not affect this
Guaranty. If Landlord transfers its interest in the Lease (other than as a
collateral assignment for security, until the holder thereof exercises its
rights thereunder), "Landlord", as used in this Guaranty, shall thereupon mean
Landlord's successors and assigns, including successors by foreclosure or deed
in lieu proceedings. The provisions of the Lease may be changed, modified,
amended (including, without limitation, amendments expanding and/or relocating
the Premises) or waived without the consent of or notice to Guarantor. This
Guaranty shall guarantee the performance of the Lease as so changed, modified,
amended or waived. This Guaranty shall apply, without the consent of or notice
to Guarantor, to any extension or renewal the Lease, and to any holdover term
following the term granted in the Lease or any extension or renewal thereof.
This Guaranty shall also apply, without the consent of or notice to Guarantor,
to any other leases, storage agreements, parking agreements, or other documents
now or hereafter entered between Landlord and Tenant or its affiliates relating
to the Premises or any part thereof (and all such documents shall be deemed part
of the Lease for purposes of this Guaranty).
4. Joinder; Statute of Limitations. Guarantor agrees that it may be
joined in any action against Tenant in connection with the obligations of Tenant
under the Lease as covered by this Guaranty and recovery may be had against
Guarantor in any such action, or Landlord may enforce the obligations of
Guarantor hereunder without first taking any action whatsoever against Tenant or
its successors and assigns, or pursue any other remedy or apply any security it
may hold and Guarantor hereby waives all rights to assert or plead at any time
any statute of limitations as relating to the Lease, the obligations of
Guarantor hereunder and any and all surety or other defenses in the nature
thereof.
5. Limitation and Claims; Subordination. Until all the covenants and
conditions in the Lease on Tenant's part to be performed and observed are fully
performed and observed, Guarantor: (a) shall have no right of subrogation,
contribution or reimbursement against Tenant by reason of any payments or acts
of performance by Guarantor in compliance with the obligations of Guarantor
hereunder; (b) waives any right to enforce any remedy which Guarantor now or
hereafter shall have against Tenant by reason or any one or more payments or
acts of performance in compliance with the obligations of Guarantor hereunder;
and (c) subordinates
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any liability or indebtedness of Tenant now or hereafter held by Guarantor to
the obligations of Tenant to Landlord under the Lease.
6. De Facto Tenant. In the event this Guaranty shall be held ineffective
or unenforceable by any court of competent jurisdiction or in the event of any
limitation of liability of Guarantor hereon other than as expressly provided
herein, then Guarantor shall be deemed to be a Tenant under the Lease with the
same force and effect as if Guarantor were expressly named as a joint and
several Tenant therein with respect to the obligations of Tenant thereunder
hereby guaranteed.
7. Defenses of Tenant. Guarantor waives any defense by reason of any
legal or other disability of Tenant and any other party to the Lease, and waives
any other defense based on the termination of Tenant's liability for any cause.
8. No Waiver by Landlord. No delay on the part of Landlord in exercising
any right hereunder or under the Lease shall operate as a waiver of such right
or of any other right of Landlord under the Lease or hereunder, nor shall any
delay, omission or waiver on any one or more occasions be deemed a bar to or a
waiver of the same or any other right on any other future occasion.
9. Joint and Several Liability. If there is more than one undersigned
Guarantor, the term "Guarantor" as used herein, shall include all of such
undersigned and each and every provision of this Guaranty shall be binding on
each and every one of the undersigned and they shall be jointly and severally
liable hereunder and Landlord shall have the right to join one or all of them in
any proceeding or to proceed against them in any order.
10. Whole Agreement. This instrument constitutes the entire agreement
between Landlord and Guarantor with respect to the subject matter hereof,
superseding all prior oral or written agreements or understandings with respect
thereto and may not be changed, modified, discharged or terminated orally or in
any manner other than by an agreement in writing signed by Guarantor and
Landlord.
11. Applicable Law. This Guaranty shall be governed by and construed in
accordance with the laws of the State in which the Premises are located.
12. Guarantor's Successors. Guarantor's obligations under this Guaranty
shall be binding on the successors, heirs and assigns of Guarantor by operation
of law or otherwise (including any receiver or bankruptcy trustee). Guarantor
shall not be released by any assignment or delegation by it of its obligations
hereunder.
13. Attorneys' Fees. If Landlord enforces Guarantor's obligations
hereunder by legal proceedings, Guarantor shall pay to Landlord all costs
incurred, including without limitation reasonable attorneys' fees.
14. Bankruptcy Preferences. If Landlord is required to turn over any
amounts received under the Lease or this Guaranty to any bankruptcy court or
state insolvency
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proceeding, as a "preference" or otherwise, Guarantor shall promptly pay
Landlord such amount as a reinstated obligation hereunder.
15. Captions Interpretation; Severability. The paragraph headings
appearing herein are for purposes of identification and reference only and shall
not be used in interpreting this Guaranty. Capitalized terms not otherwise
defined herein shall have the meanings ascribed thereto in the Lease. It is
agreed that it any provision of this Guaranty or the application of any
provision to any person or any circumstance shall be determined to be invalid or
unenforceable to any extent, such determination shall not affect any other
provision of this Guaranty or the application of such provision to the fullest
extent permitted or to any other person or circumstance, all of which other
provisions shall remain in full force and effect to the fullest extent
permitted. It is the intention of the parties hereto that if any provision of
this Guaranty is capable to two constructions, one of which would render the
provision valid, the provision shall have the meaning which renders it valid.
16. WAIVER OF JURY TRIAL. IN THE INTEREST OF OBTAINING A SPEEDIER AND
LESS COSTLY HEARING OF ANY' DISPUTE, EACH OF LANDLORD AND GUARANTOR HEREBY
EXPRESSLY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING, COUNTERCLAIM OR
CROSSCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER AND ANY RIGHTS TO A TRIAL
BY JURY UNDER ANY STATUTE, RULE OF LAW OR PUBLIC POLICY IN CONNECTION WITH ANY
MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS GUARANTY OR THE
AGREEMENT. Although such jury waiver is intended to be self-operative and
irrevocable, Landlord and Guarantor each further agree, if requested, to confirm
such waivers in writing at the time of commencement of any such action,
proceeding, counterclaim or crossclaim.
17. Acknowledgment; Enforceability. GUARANTOR REPRESENTS AND WARRANTS TO
LANDLORD THAT GUARANTOR HAS READ THE AGREEMENT AND THIS GUARANTY AND UNDERSTANDS
THE CONTENT HEREOF, AND THAT THIS GUARANTY IS ENFORCEABLE AGAINST GUARANTOR IN
ACCORDANCE WITH ITS TERMS.
18. Tenant's Financial Condition. Guarantor acknowledges that Guarantor
is aware of the present financial condition of Tenant. Guarantor assumes the
responsibility to remain informed of the risk of Tenant's default; Landlord
shall have no duty to advise Guarantor of the same.
19. Authority. The individuals signing below hereby represent and
warrant that they are fully authorized to do so, and have obtained all necessary
approvals and authorizations therefor, with knowledge that Landlord is relying
thereupon.
20. Married Guarantor. Any married Guarantor expressly agrees that
Landlord has recourse for all such Guarantor's obligations hereunder against
such Guarantor's separate property and all community property of such Guarantor
and his or her spouse, and has caused his or her spouse to join in this Guaranty
for the reasons and purposes stated herein by signing this
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Guaranty below; if no such spouse has signed, such Guarantor hereby represents
and warrants that he or she is unmarried.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the day
and year first above written.
HYUNDAI ELECTRONICS AMERICA,
a California corporation
BY: /s/ David Eicnler
------------------------------
NAME TYPED: David Eicnler
------------------------------
TITLE: Senior VP Finance & Admin.
------------------------------
CERTIFICATE
I, S.K. Park, as Secretary of the aforesaid Guarantor, hereby certify
that the individual(s) executing the foregoing Guaranty on behalf of Guarantor
was/were duly authorized to act in his/their capacities as set forth above, and
his/their action(s) are the action of Guarantor.
/s/ S.K. Park
-----------------------------
Corporate Seal
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EXHIBIT A
Legal Description of the Premises
All that certain real property situated in the State of California, County of
Santa Clara, City of Milpitas and described as follows:
Parcel 1 as shown on the Parcel Map as filed on January 27, 1984 in Book 524 of
Maps, Page 22, Records of Santa Clara County.
<PAGE> 50
EXHIBIT B
(Hazardous Materials Questionnaire)
TO: Maxtor Corporation
FROM: Milpitas Oak Creek Delaware, INC.
SUBJECT: HAZARDOUS MATERIALS QUESTIONNAIRE AS IT RELATES TO CALIFORNIA
HEALTH AND SAFETY CODE SECTIONS 25503.5 AND 25503.6
California Health and Safety Code Section 25503.5 requires any business which
handles Hazardous materials in excess of certain limits to establish a business
plans for emergency response to a release or threatened release of Hazardous
Materials. Health and Safety Code Section 25503.6 specifies that nay business
which is required under Section 25503.5 to establish and implement a business
plan and is located on leased property is required to notify the owner in
writing that the business within five working days after receiving a request
from the owner or owner's agent for a copy.
The purpose of this letter is to request that you either verify that you are not
subject to health and Safety Code Sections 25503.5 and 25503.6 or that you will
provide the information required to be provided by those Sections by:
1. Completing the attached acknowledgment;
2. Completing the attached questionnaire;
3. If you are a reporting company, attaching a copy of your
hazardous materials management plan.
If you have questions as to your own specific requirements, please contact the
local fire department to assess your use.
Sincerely,
ACKNOWLEDGMENT
THE UNDERSIGNED HEREBY ACKNOWLEDGES THAT IT (Mark One):
______ Does not use any hazardous materials other than minor amounts of
reproduction and janitorial chemicals consistent with routine office
uses. (No need to fill out the attached Hazardous Materials
Questionnaire.)
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<PAGE> 51
______ Does not use any hazardous materials in a manner or in a quantity
requiring the preparation of a hazardous material management plan or
any other documents under California Health and Safety Code Section
25503.5. (Please fill out the attached Hazardous Materials
Questionnaire.)
______ Uses only those chemicals identified in the attached questionnaire
in accordance with the provisions of the attached hazardous
materials management plan, which has been approved by the Fire
Department of the City of Milpitas and is in full force and effect.
(Please fill out the attached Hazardous Materials Questionnaire and
attach copy of your Hazardous Materials Management Plan.)
THE UNDERSIGNED FURTHER ACKNOWLEDGES THAT IT HAS COMPLIED IN ALL RESPECTS WITH
THE PROVISIONS OF LOCAL, STATE AND FEDERAL LAW AND THE HAZARDOUS MATERIALS
MANAGEMENT PLAN ATTACHED HERETO IN CONNECTION WITH ITS STORAGE, SUE AND DISPOSAL
OF HAZARDOUS MATERIALS AND THAT IT HAS DISPOSED OF HAZARDOUS MATERIALS ONLY BY
(1) DISCHARGE TO APPROPRIATELY TREATED WASTE TO A PUBLICLY OWNED TREATMENT WORK
IN ACCORDANCE WITH A VALID AND ENFORCEABLE WASTE DISCHARGE PERMIT AND (2)
DELIVERY OF HAZARDOUS WASTES TO A PROPERLY LICENSED WASTE DISPOSAL AGENT.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the aforementioned
company has executed this acknowledgment as of the date written below.
Maxtor Corporation, a Delaware corporation
By: /s/: Paul J. Tufano
-------------------------------------
Paul J. Tufano VP/CFO
- ----------------------------------------
(Print Name and Title)
29 JAN 98
- ----------------------------------------
(Date)
HAZARDOUS MATERIALS QUESTIONNAIRE
General Instructions: Please provide all requested information, based on
interviews with Company personnel likely to possess information and upon a
review of the Company's records. If there is insufficient space to respond to
any question, separate page(s) referring to the question number may be attached.
Use "N/A" if the question is not applicable to your facilities; use "Unknown" if
information is not available in the Company's files and is not known by the
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<PAGE> 52
person(s) completing this questionnaire. As used herein, the term "Governmental
Agency" shall mean any local, state, or federal governmental or
quasi-governmental agency, authority, entity, subdivision or court; the term
"Hazardous Material" shall mean any chemical, substance, vapor, smoke,
radiation, or material which is listed as "Hazardous" or "toxic" under any Law
or which is otherwise regulated or prohibited under any Law; and "Law" shall
mean any local, state, or federal regulation, statute, law order or ordinance.
List the person who completed this questionnaire and will be
available for questions concerning this questionnaire.
Company Name: Maxtor Corporation
Name: Bethany Pelosa
Position: Director of Safety, Facilities
Telephone: 303 678-2226
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1. GENERAL DESCRIPTION OF OPERATIONS:
1.1 Please describe the activities to be conducted at your new
Facility on the attached Schedule 1. General business activities
with R & D and Pilot or Prototype manufacturing.
1.2 Will the activities conducted at your new Facility change
significantly in the future?
Yes [ ] No [X]
If so, please describe:
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2. HAZARDOUS MATERIALS PRODUCTION AND USAGE:
2.1 Will your new Facility store or manufacture Hazardous Materials?
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Yes [X] No [ ]
If yes, please complete Schedule 2.
Small quantities of chemicals and compressed gases used in
the R & D lab are stored and used on-site.
3. HAZARDOUS MATERIALS STORAGE:
3.1 Will there be any underground storage tanks (including fuel
tanks) at your Facility?
4. Yes [ ] No [X]
If yes, please complete Schedule 3.1 for each such underground
tank.
3.2 Will there be a Hazardous Material storage area at your new
Facility?
Yes [X] No [ ]
If yes, please complete Schedule 3.2 for each such storage area.
All materials shall be stored in the lab or Shipping/Receiving
areas only.
4. WASTES AND EMISSIONS:
4.1 Will your Facility generate any "waste" as defined in RCRA?
Yes [X] No [ ]
If yes, please attach copies of each such permit and approval and
complete Schedule
Waste solvents generated in the laboratory will be collected and
disposed of.
4.2 Will your Facility discharge waste to any body of water or stream
or to any sanitation systems, or will your Facility otherwise
required to obtain a NPDES Permit of any other permit or approval
from a Governmental Agency concerning waste water discharges?
Yes [ ] No [X]
If yes, please attach copies of each such permit and approval and
complete Schedule 4.2.
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4.3 Will your Facility ever emit any air contaminant (including, but
not limited to, reactive hydrocarbons, sulfur oxides, carbon
monoxide, nitrogen oxides, lead, particulate matter, beryllium,
mercury, asbestos, vinyl chloride, benzene, and radionucliides)
or will your Facility be required to obtain an air emissions
permit or other permit or approval from a Governmental Agency
concerning air emissions in order to conduct its business?
Yes [ ] No [X]
If yes, please attach copies of each such permit and approval
and complete Schedule 4.3.
4.4 Will annual emissions form the Facility (after control equipment)
exceed 250 tons per year under Prevention of Significant
Deterioration Regulations?
Yes [ ] No [X]
If yes, please explain:
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4.5 Will your Company transport waste off-site for disposal?
Yes [X] No [ ]
If yes, please complete Schedule 4.5.
Non RCRA corrosive waste only shall be transported off site for
disposal.
4.6 Will your Company transport waste off-site for recycling?
Yes [X] No [ ]
If yes, please complete Schedule 4.6.
4.7 Will your Facility be required to comply with the Federal
Resources Conservation and Recovery Act?
Yes [ ] No [X]
If yes, please complete Schedule 4.7.
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<PAGE> 55
4.8 Will your new Facility possess any other permits or approval from
a Governmental Agency or other person with respect to its
Hazardous Materials activities?
Yes [X] No [ ]
If yes, please complete Schedule 4.8.
Hazardous Materials Storage Permit shall be issued by the
Milpitas Fire Department.
4.9 Does your Company require any permit or approval not presently in
full force and effect from any Governmental Agency or other
person in order to conduct its Hazardous material activities?
Yes [ ] No [X]
If yes, please describe the permit or approval required:
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5. HAZARDOUS MATERIAL RELEASES/SPILLS:
5.1 Has there been an occasion in any of your Facilities in the past,
when a liquid or solid waste material or any fuel or other
Hazardous Material was accidentally or intentionally spilled or
released:
Outside of the building?
Yes [ ] No [X]
Within the building?
Yes [ ] No [X]
By Company personnel, agents or contractors outside of the
Facility?
Yes [ ] No [X]
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<PAGE> 56
If you have answered "yes" to any of the foregoing, please
describe the event(s) in detail, including the Hazardous
Materials involved, whether the event was reported to any
Governmental Agency, the responsive action taken, any claim(s)
that have resulted from the event, and all other relevant
information concerning the spill or release.
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5.2 Have any notices of violation been received or threatened at any
time for alleged failure of any of your Facilities to comply
with applicable air pollution Laws or with any air quality
permit in the past?
Yes [ ] No [X]
If yes, please describe in detail:
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5.3 Has your Company received any request for information from the
U.S. EPA pursuant to CERCLA Section 104 or any other request for
information from a Governmental Agency or other person
concerning the Company's Hazardous Material activities or the
presence of Hazardous materials at your Facility in the past?
Yes [ ] No [X]
If yes, please describe the request and the Company response:
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5.4 Has your Company ever received any notice of any kind from the
EPA or any other Governmental Agency or third party to the
effect that the Company must contribute to the cost of any
hazardous material investigation or remediation at your Facility
in the past?
Yes [ ] No [X]
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<PAGE> 57
If yes, please describe in detail the suite in question, the
approximate number of PRPs, the identity of the primary PRPs,
the party instituting the actin or given the notice, and any
insurance coverage available to the Company for the liability.
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6. GROUNDWATER:
6.1 Has there been any testing done by your Company regarding the
chemical characteristics of the groundwater at or near your
Facility in the past?
Yes [ ] No [X]
If yes, please describe circumstances and results.
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7. WORKING CONDITIONS:
7.1 In the last five years, has your Company received any citation
from any Governmental Agency (e.g., OSHA) or a grievance from a
collective bargaining unit for alleged unsafe working conditions
at your Facility?
Yes [ ] No [X]
If yes, please describe each citation and/or grievance and the
disposition thereof.
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7.2 In the last five years, have any inspections or tests been
conducted by or tests been conducted by or at the request of
OSHA or a comparable state agency, any employee group, or your
company in connection with Hazardous Materials.
Yes [ ] No [X]
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<PAGE> 58
If yes, please identify and attach copies of results.
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7.3 Will any Company employees at your new Facility use face masks
or other protective clothing or equipment?
Yes [X] No [ ]
If yes, please complete Schedule 7.3.
Chemical resistant gloves and eye protection shall be used when
handling hazardous materials. However, no respiratory protection
is required.
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7.4 Do all Facilities where Hazardous Materials are present have a
training program for employees who work with Hazardous
Materials?
Yes [X] No [ ]
If you have answered no to either of the foregoing, please
explain fully:
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7.5 Have there been any claims against the Company by employees for
injury due to the work environment.
Yes [ ] No [X]
If yes, please explain:
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<PAGE> 59
7.6 Will your new Facility be in compliance with federal or state
work place "hazard communication" standards and other "right to
know" Laws (such as California Proposition 65 and SARA Title
III)?
Yes [X] No [ ]
If not, please explain:
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7.7 Will your new Facility have an emergency plan to deal with
fires, explosions, or releases of Hazardous Materials?
Yes [X] No [ ]
If yes, please attach a copy of emergency procedures. If no,
please explain fully:
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7.8 In the last ten years, has your Company or the operator of your
Facility, been a party in any litigation in which allegations
have been made regarding intentional or unintentional releases
of air contaminants or hazardous materials which allegedly
harmed or threatened to harm persons in the vicinity of the
Facility?
Yes [ ] No [X]
If yes, please fully explain each instance and the results.
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8. INSURANCE.
8.1 Will your Facility have any "environmental impairment"
insurance?
Yes [ ] No [X]
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<PAGE> 60
8.2 Within the last five years, has any insurance company either:
Refused to cover your Facility under environmental impairment
insurance?
Yes [ ] No [X]
OR
Canceled such coverage?
Yes [ ] No [X]
If you have answered "yes" to either of the foregoing, please
describe fully:
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GOVERNMENT COMPLIANCE
FACILITY: Maxtor, 510 Cottonwood Drive, Milpitas, CA
1. Will the new Facility need to file with any local, state or federal
environmental agency a generator's notification of hazardous waste
(e.g., an RCRA 3010 notification)?
Yes [ ] No [X]
If so, please attach a copy of such notification.
2. Will the Facility have an EPA hazardous waste generator's identification
number?
Yes [X] No [ ]
If so, please specify number: To be obtained, no hazardous waste has
been disposed of to date.
3. Will the Company need to file with any Governmental Agency, any
hazardous waste generator's reports (quarterly, semi-annual or
bi-annual) with respect to the Facility?
Yes [ ] No [X]
If yes, please attach copies of each report for the last 2 years.
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<PAGE> 61
4. Will the Facility retain copies of hazardous waste manifests for
hazardous waste transported off-site?
Yes [X] No [ ]
If yes, please attach copies for the last year.
None generated to date.
5. Will the new Facility make a "Part A" Application for a hazardous waste
treatment, storage or disposal facility ("TSD") permit with any
Governmental Agency under RCRA or any similar state or local Law?
Yes [ ] No [X]
If yes, please attach a copy of each application.
6. Will the Facility make a "Part B" Application (or Operation Plan) for a
TSD facility permit under RCRA or any similar state or local Law with
any Government Agency?
Yes [ ] No [X]
7. Will there be any "interim status" or final permit issued by any
Governmental Agency authorizing the Facility to treat, store or dispose
of Hazardous Material waste?
Yes [ ] No [X]
8. Has any facility or operator of any previous Facility received from any
governmental agency, a letter identifying it as a "potentially
responsible party" in a Hazardous material clean-up proceeding?
Yes [ ] No [X]
If yes, please describe fully:
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<PAGE> 62
9. Has the Company received from any Governmental Agency any notice of
violation of a Hazardous Material Law?
Yes [ ] No [X]
If yes, describe fully:
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<PAGE> 63
EXHIBIT C
Form of Letter of Credit
(Letterhead and Address of Bank)
Milpitas Oak Creek Delaware, Inc.
c/o GSIC Realty Corporation
255 Shoreline Drive, Suite 600
Redwood City, California 94065
Re: Clean Irrevocable Standby Letter of Credit
No. _______________________
Gentlemen:
We hereby establish our Clean Irrevocable Standby Letter of Credit No.
_________________ in your favor for the account of ("Tenant") in the aggregate
amount of ______________________ ($___________________).
You may draw upon such Letter of Credit at sight at the above address or any of
our other offices on or before
____________________________, _____, or such annual anniversary thereof to which
such date may be extended as provided herein. This Letter of Credit shall be
automatically extended without amendment for ________________ one year periods,
unless at least thirty (30) days prior to the present or any future expiration
date, we shall notify you by certified mail that we elect not to renew this
Letter of Credit (such notice to be deemed given when received by you). Upon
receipt of such notice, you may draw upon this Letter of Credit as provided
herein.
You may draw upon this Letter of Credit upon the presentation of your draft,
executed by an officer, member, manager, co-manager or general partner of your
company, or of its manager, co-manager or general partner, accompanied by
his/her written statement that you are entitled to draw down the same. We will
honor the same without requiring anything further of any party or person and
regardless of any contrary claims, demands or instruction. You may make partial
drawings not to exceed in the aggregate the foregoing amount.
This Letter of Credit is binding upon, and shall inure to the benefit of, the
parties and their successors and assigns (without limitation as to the number of
times this Letter of Credit may be transferred. This Letter of Credit sets forth
our entire undertaking, and shall not be modified, amended or expanded by
reference to any other document, instrument or agreement. Except to the extent
expressly inconsistent therewith, this Letter of Credit is subject to the
Uniform Customs and Practice for Documentary Credits (1993 Revisions),
International Chamber of Commerce Publication 500, and the Uniform Commercial
Code as adopted in the State in which this Bank is located, as the same may be
revised from time to time. In the event of conflict between the Uniform Customs
and Practice and the Uniform Commercial Code, the latter shall govern and
control.
(Name of Bank)
By:
------------------------------------
Vice President
<PAGE> 64
EXHIBIT D
Landlord's Work
1. All carpeted areas shampooed.
2. All uncarpeted office floors cleaned and waxed, with any excess wax
build-up first properly removed.
3. Warehouse floor areas cleaned of oils, fluids and other foreign
materials, broom swept, and clean of all trash and materials.
4. Interior walls clean or repainted and any holes properly and permanently
patched.
5. Power wash all exterior surfaces.
6. All interior and exterior lights and bulbs operational.
7. All exhaust, ceiling and overhead fans operational.
8. Disconnect, cap or terminate all electrical, plumbing and other
utilities which are terminated according to applicable building codes
and all other governmental requirements.
9. Remove to the original panel all electrical and telecommunications
conduit and wiring installed by or for the prior tenant specifically for
such tenant's equipment (if Landlord so elects).
10. Overhead interior and exterior doors operational and in good condition.
11. Any bolts secured to the floor cut off flush and seated with epoxy.
12. Warehouse fencing or partitions removed (if Landlord so elects).
13. All furniture, trash and debris removed.
14. Remove all signs and pictures, posters, signage, stickers and all
similar items of the prior tenant and any other prior occupant of the
Premises from all walls, windows, doors and all other interior and
exterior surfaces of the Premises.
15. All computer cable and conduit installed by or for the prior tenant
removed to point of origin.
16. All windows and miscellaneous hardware operational and in good
condition.
17. All heating, air conditioning and mechanical systems and equipment
operational and in good condition.
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<PAGE> 65
18. Ceiling tiles, grid, light lenses, air grills and diffusers in place
with no holes or significant stains.
19. No broken windows or other glass items.
20. Bathroom walls, floors, and fixtures clean and in good condition.
21. All plumbing fixtures intact, operational, free of leaks and in good
condition.
22. All gutters and downspouts undamaged and operational.
23. The roof membrane in good condition and repair.
24. All lawn sprinkler equipment operational with no water leaks.
25. All plants, trees and shrubbery intact and healthy.
26. All lawns recently mowed and edged, and shrubbery trimmed.
27. The parking lot and all paved areas free of cracks, sealed and striped,
and otherwise in good condition and repair.
Items 1-23, inclusive, shall be performed only in that portion of the Premises
comprising the Other Subtenant's Sublease Space, as defined in Article 2.C of
the Lease; items 24-27, inclusive, shall be performed in the entirety of the
Premises.
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<PAGE> 66
EXHIBIT E
PREMISES CONDITION MEMORANDUM
THIS PREMISES CONDITION MEMORANDUM ("Memorandum") is made as of the ___ day of
_____________________, 1998, by and between MILPITAS OAK CREEK DELAWARE, INC.
("Landlord") and MAXTOR CORPORATION, a Delaware corporation ("Tenant").
1. Landlord and Tenant are parties to that certain lease dated as of
February 23, 1998 (herein referred to as the "Lease") for premises ("Premises")
located at 510 and 530 Cottonwood Drive, Milpitas, California, and mutually
desire to enter this Memorandum confirming certain matters relating to the
Lease.
2. All items of Landlord's Work as described in Article 8.1 of the Lease
have been completed satisfactorily, the Premises are tenantable and suitable for
the permitted use under the Lease and the Premises are satisfactory in all
respects.
3. Capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Lease.
LANDLORD: MILPITAS OAK CREEK DELAWARE, INC.,
a Delaware corporation
BY:
-------------------------------
ITS:
------------------------------
BY:
-------------------------------
ITS:
------------------------------
TENANT: MAXTOR CORPORATION,
a Delaware corporation
BY:
--------------------------------
NAME TYPED:
------------------------
TITLE:
----------------------------
1
<PAGE> 67
(9) OVERLOADING FLOORS. Tenant shall not overload any floor or part thereof in
the Premises.
(10) GOING-OUT-OF-BUSINESS SALES AND AUCTIONS. Tenant shall not use, or permit
any other party to use, the Premises for any distress, fire, bankruptcy,
close-out, "lost our lease" or going out-of-business sale or auction. Tenant
shall not display any signs advertising the foregoing anywhere in or about the
Premises.
(11) [INTENTIONALLY OMITTED]
(12) PROHIBITED ACTIVITIES. Tenant shall not: (i) use strobe or flashing lights
in or on the Premises or in any signs therefor, (ii) operate any loudspeaker,
television set, phonograph, radio, or other musical or sound producing
instrument or device so as to be heard outside the Premises, (iii) operate any
electrical or other device which interferes with or impairs radio, television,
microwave, or other broadcasting or reception elsewhere, (iv) make or permit
objectionable noise, vibration or odor to emanate from the Premises or any
equipment serving the same, (v) do or permit anything in or about the Premises
that is unlawful, immoral, obscene, pornographic, or which tends to create or
maintain a nuisance.
(13) RESPONSIBILITY FOR COMPLIANCE. Tenant shall be responsible for ensuring
compliance with these Rules, as they may be amended, by Tenant's employees and
as applicable, by Tenant, any other occupant of the Premises, and their
respective agents, employees, invitees, Transferees and contractors.
(14) CONDITION AT EXPIRATION OR TERMINATION. Upon expiration or earlier
termination of this Lease, in addition to the requirements under Article 23 of
this Lease, Tenant shall ensure that:
1. All carpeted areas are shampooed.
2. All uncarpeted office floors are cleaned and waxed, with any excess
wax build-up first properly removed.
3. Warehouse floor areas are cleaned of oils, fluids and other foreign
materials, broom swept, and clean of all trash and materials.
4. Interior walls are clean or repainted and any holes are properly and
permanently patched.
5. Power wash all exterior surfaces.
6. All interior and exterior lights and bulbs are operational.
7. All exhaust, ceiling and overhead fans are operational.
1
<PAGE> 68
8. All electrical, plumbing and other utilities which are terminated
are disconnected, capped and/or terminated according to applicable
building codes and all other governmental requirements.
9. All electrical and telecommunications conduit and wiring installed
by or for Tenant specifically for Tenant's equipment is removed to
the originating panel if Landlord so requires.
10. Overhead interior and exterior doors are operational and in good
condition.
11. Any bolts secured to the floor are cut off flush and sealed with
epoxy.
12. Warehouse fencing or partitions are removed if Landlord so requires.
13. All furniture, trash and debris are removed.
14. All signs and pictures, posters, signage, stickers and all similar
items of Tenant and any other occupant of the Premises are removed
from all walls, windows, doors and all other interior and exterior
surfaces of the Premises where Landlord permitted installation.
15. All computer cable and conduit installed by or for Tenant is removed
to point of origin.
16. All windows and miscellaneous hardware are operational and in good
condition.
17. All heating, air conditioning and mechanical systems and equipment
are operational and in good condition.
18. Ceiling tiles, grid, light lenses, air grills and diffusers are in
place with no holes or significant stains.
19. There are no broken windows or other glass items.
20. Bathroom walls, floors, and fixtures are clean and in good
condition.
21. All plumbing fixtures are intact, operational, free of leaks and in
good condition.
22. All gutters and downspouts are undamaged and operational.
23. All lawn sprinkler equipment is operational with no water leaks.
24. All plants, trees and shrubbery are intact and healthy.
25. All lawns have recently been mowed and edged, and shrubbery trimmed.
26. The roof is in good condition and repair (in accordance with NRCA
guidelines) with no apparent leaks.
2
<PAGE> 69
27. All keys to all locks to or within the Premises, any key cards and
parking stickers, the combination to any vaults that Landlord
permits or requires Tenant to leave on the Premises, all plans and
specifications for all leasehold improvements made to the Premises,
and all reports, studies and other materials relating to Hazardous
Materials that were even on the Premises, shall be turned over to
Landlord.
28. The parking lot and all paved areas are free of cracks, sealed and
striped and otherwise in good condition and repair.
3
<PAGE> 70
STANDBY LETTER OF CREDIT NO. MS1092158
DATE OF ISSUE: JANUARY 29, 1998
ISSUING BANK: APPLICANT:
FLEET NATIONAL BANK MAXTOR CORPORATION
A MEMBER FLEET FINANCIAL GROUP 510 COTTONWOOD DRIVE
P.O. BOX 2197, MA ML SFTINT MILPITAS, CA 95035
BOSTON MA 02106-2197 ATTN: GLEN HAUBL
BENEFICIARY:
MILPITAS OAK CREEK DELAWARE, INC.
C/O GSIC REALITY CORPORATION
255 SHORELINE ROAD, SUITE 600
REDWOOD CITY, CA 94065
AMOUNT/CURRENCY:
UP TO USD 500,000.00
UP TO FIVE HUNDRED THOUSAND AND
00/100'S US DOLLARS
DATE AND PLACE OF EXPIRY:
JANUARY 29, 1999 AT OUR COUNTERS
WE HEREBY OPEN OUR IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER MS1092158 IN YOUR
FAVOR.
CREDIT AVAILABLE WITH FLEET NATIONAL BANK BY PAYMENT OF YOUR DRAFT(S) AT SIGHT
DRAWN ON FLEET NATIONAL BANK.
DRAFTS MUST BE ACCOMPANIED BY:
THE ORIGINAL LETTER OF CREDIT AND ALL AMENDMENTS THERETO, IF ANY
IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT SHALL BE DEEMED AUTOMATICALLY
EXTENDED WITHOUT AMENDMENT(S) FOR PERIOD(S) OF ONE YEAR EACH FROM ITS CURRENT OR
ANY FUTURE EXPIRATION DATE(S) UNLESS, AT LEAST SIXTY (60) DAYS PRIOR TO THE THEN
CURRENT EXPIRATION DATE, WE NOTIFY YOU IN WRITING BY REGISTERED MAIL THAT WE
ELECT NOT TO CONSIDER THIS LETTER OF CREDIT RENEWED FOR ANY ADDITIONAL PERIOD.
PARTIAL DRAWINGS ARE ALLOWED
THE NUMBER AND DATE OF THE CREDIT AND THE NAME OF OUR BANK MUST BE QUOTED ON ALL
DRAFT(S) REQUIRED.
<PAGE> 71
PAGE: 2
THIS IS AN INTEGRAL PART OF LETTER OF CREDIT NUMBER: MS1092158
EACH DRAFT PRESENTED HEREUNDER MUST BE ACCOMPANIED BY THIS ORIGINAL CREDIT FOR
OUR ENDORSEMENT THEREON OF THE AMOUNT OF SUCH DRAFT.
THIS LETTER OF CREDIT IS TRANSFERABLE IN FULL AND NOT IN PART. ANY TRANSFER MADE
HEREUNDER MUST CONFORM STRICTLY TO THE TERMS HEREOF AND TO THE CONDITIONS OF
ARTICLE 48 OF THE UNIFORM STRICTLY TO THE TERMS HEREOF AND TO THE CONDITIONS OF
ARTICLE 48 OF THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993
REVISION) FIXED BY THE INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500
AND THE UNIFORM COMMERCIAL CODE OF THE STATE OF NEW YORK EXCEPT IN THAT THIS
LETTER OF CREDIT MAY BE TRANSFERRED ONE OR MORE TIMES WITHOUT LIMITATION.
SHOULD YOU WISH TO EFFECT A TRANSFER UNDER THIS CREDIT, SUCH TRANSFER WILL BE
SUBJECT TO THE RETURN TO US OF THE ORIGINAL CREDIT INSTRUMENT, ACCOMPANIED BY
OUR FORM OF TRANSFER, PROPERLY COMPLETED AND SIGNED BY AN AUTHORIZED SIGNATORY
OF YOUR FIRM, BEARING YOUR BANKERS STAMP AND SIGNATURE AUTHENTICATION AND
SUBJECT TO YOUR PAYMENT OF OUR CUSTOMARY TRANSFER CHARGES OF 1/4 OF 1% MINIMUM
$150.00.
COMMUNICATIONS WITH RESPECT TO THIS LETTER OF CREDIT SHALL BE IN WRITING AND
SHALL BE ADDRESSED TO US, SPECIFICALLY REFERRING TO THE NUMBER OF THIS LETTER OF
CREDIT.
EXCEPT AS OTHERWISE EXPRESSLY STATED HEREIN, THIS CREDIT IS SUBJECT TO THE
UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION,
INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NUMBER 500) AND THE UNIFORM
COMMERCIAL CODE OF THE STATE OF NEW YORK (AS THE SAME MAY BE REVISED FROM TIME
TO TIME). IN THE EVENT OF CONFLICT BETWEEN THE UNIFORM CUSTOMS AND PRACTICE AND
THE UNIFORM COMMERCIAL CODE, THE LATTER SHALL GOVERN AND CONTROL.
/s/ Authorized Signatory
------------------------------------
AUTHORIZED SIGNATURE
THIS DOCUMENT CONSISTS OF 2 PAGE(S)
<PAGE> 72
FLEET NATIONAL BANK
FLEET PENNSYLVANIA SERVICES, INC.
1 FLEET WAY
SCRANTON, PA 18507-1999
TRADE SERVICES DEPT.-STANDBY UNIT
Date ____________________
RE: Credit Issued by Fleet National Bank
Letter of Credit Number ________________________
Gentlemen:
For value received, the undersigned beneficiary hereby irrevocably transfers to:
- --------------------------------------------------------------------------------
(Name of Transferee)
- --------------------------------------------------------------------------------
(Address)
all rights of the undersigned beneficiary to draw under the above Letter of
Credit in its entirety.
By this transfer, all rights to the undersigned beneficiary in such Letter of
Credit are transferred to the Transferee and the Transferee shall have the sole
rights as Beneficiary thereof, including sole rights relating to any amendments
whether increases or extensions or other amendments and whether now existing or
hereafter made. All amendments are to be advised direct to the Transferee
without necessity of any consent of or notice to the undersigned beneficiary.
The original of such Letter of Credit is returned herewith and we ask you to
endorse the transfer on the reverse thereof and forward it directly to the
Transferee with your customary notice of transfer.
Enclosed is remittance to $________________ in payment of your transfer
commission and in addition thereto we agree to pay to you on demand any expenses
which may be incurred by you in connection with this transfer.
SIGNATURE AUTHENTICATED Very truly yours,
- ------------------------------- ---------------------------------------------
(Bank) (Signature of Beneficiary)
- ------------------------------
(Authorized Signature)
<PAGE> 73
RECORDKEEPING
(Uniform Hazardous Materials Business Plan Module)
All facilities which handle hazardous materials must maintain records associated
with their management. A summary of your recordkeeping procedures is a required
module of the Uniform Hazardous Materials Business Plan (HMBP). A blank summary
has been provided below for you to complete and submit if you do not already
have such a document. If you already have a brief written description of your
hazardous materials recordkeeping systems which addresses all subjects covered
below, you are not required to complete this page, but you must include a copy
of your existing document as part of your HMBP.
Check all boxes which apply. The following records are maintained at the
facility. [Note: Items marked with an asterisk (*) are required]:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
[X] Current employees' training records (to be retained until closure of the facility) *
- ------------------------------------------------------------------------------------------------------------------------
[X] Former employees' training records (to be retained at least three years after termination of employment) *
- ------------------------------------------------------------------------------------------------------------------------
[X] Training Program(s) (i.e., written description of introductory and continuing training) *
- ------------------------------------------------------------------------------------------------------------------------
[X] Current copy of this Emergency Response/Contingency Plan *
- ------------------------------------------------------------------------------------------------------------------------
[X] Record of recordable/reportable hazardous material/waste releases *
- ------------------------------------------------------------------------------------------------------------------------
[X] Record of hazardous material/waste storage area inspections *
- ------------------------------------------------------------------------------------------------------------------------
[X] Record of hazardous waste tank daily inspections *
- ------------------------------------------------------------------------------------------------------------------------
[X] Description and documentation of facility emergency response drills
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The above list of records does not necessarily identify every type of
record required to be maintained by the facility.
A copy of the Inspection Check Sheet(s) or Log(s) used in conjunction with
required routine self-inspections of your facility must be submitted with your
HMBP. (Exception: Attached, you will find a Uniform Monitoring Inspection Log
sheet which you may use if you do not already have your own form. If you use the
example provided, you do not need to attach a copy.)
Check the appropriate box:
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
[X] We will use the Uniform Monitoring Inspection Log Sheet to document inspections.
- -------------------------------------------------------------------------------------------------------------------------
[ ] We will use our own documents to record inspections. A blank copy of each document used is attached to this HMBP.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 74
ABOVEGROUND SEPARATION, CONTAINMENT, AND MONITORING PLAN
(Appendix to Uniform Hazardous Materials Business Plan)
Complete one column for each aboveground storage area shown on the Uniform
Hazardous Materials Business Plan Storage Map(s). Write the appropriate location
code in the box provided at the top of each column, then moving down the column,
check all boxes which apply to that location. Make additional copies of this
page if needed.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Location Code RM-168
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Storage [X] Inside building [ ] Inside building [ ] Inside building [ ] Inside building [ ] Inside building
Type [ ] Outside [ ] Outside [ ] Outside [ ] Outside [ ] Outside
storage shed storage shed storage shed storage shed storage shed
[ ] Outdoors [ ] Outdoors [ ] Outdoors [ ] Outdoors [ ] Outdoors
- ------------------------------------------------------------------------------------------------------------------------------------
Primary [X] Original [ ] Original [ ] Original [ ] Original [ ] Original
Containment containers containers containers containers containers
[ ] Safety cans [ ] Safety cans [ ] Safety cans [ ] Safety cans [ ] Safety cans
[ ] Inside [ ] Inside [ ] Inside [ ] Inside [ ] Inside
machinery machinery machinery machinery machinery
[ ] Drums/barrels [ ] Drums/barrels [ ] Drums/barrels [ ] Drums/barrels [ ] Drums/barrels
[X] Pressure [ ] Pressure [ ] Pressure [ ] Pressure [ ] Pressure
vessels vessels vessels vessels vessels
[ ] Bulk tanks [ ] Bulk tanks [ ] Bulk tanks [ ] Bulk tanks [ ] Bulk tanks
[X] Aboveground [ ] Aboveground [ ] Aboveground [ ] Aboveground [ ] Aboveground
piping piping piping piping piping
[ ] Other [ ] Other [ ] Other [ ] Other [ ] Other
- ------------------------------------------------------------------------------------------------------------------------------------
Secondary [X] Approved [ ] Approved [ ] Approved [ ] Approved [ ] Approved
Containment cabinets cabinets cabinets cabinets cabinets
[ ] Secondary drum [ ] Secondary drum [ ] Secondary drum [ ] Secondary drum [ ] Secondary drum
[X] Tray [ ] Tray [ ] Tray [ ] Tray [ ] Tray
[ ] _____ & coated [ ] _____ & coated [ ] _____ & coated [ ] _____ & coated [ ] _____ & coated
floor floor floor floor floor
[ ] Tank vault [ ] Tank vault [ ] Tank vault [ ] Tank vault [ ] Tank vault
[ ] Secondary [ ] Secondary [ ] Secondary [ ] Secondary [ ] Secondary
piping or piping piping or piping piping or piping piping or piping piping or piping
trench trench trench trench trench
[ ] Other [ ] Other [ ] Other [ ] Other [ ] Other
- ------------------------------------------------------------------------------------------------------------------------------------
Separation [ ] All materials [ ] All materials [ ] All materials [ ] All materials [ ] All materials
compatible compatible compatible compatible compatible
[ ] One-hour [ ] One-hour [ ] One-hour [ ] One-hour [ ] One-hour
separation separation separation separation separation
wall/partition wall/partition wall/partition wall/partition wall/partition
[ ] Separation by [ ] Separation by [ ] Separation by [ ] Separation by [ ] Separation by
at least 20 feet at least 20 feet at least 20 feet at least 20 feet at least 20 feet
[X] Approved [ ] Approved [ ] Approved [ ] Approved [ ] Approved
cabinets cabinets cabinets cabinets cabinets
[ ] Other [ ] Other [ ] Other [ ] Other [ ] Other
- ------------------------------------------------------------------------------------------------------------------------------------
Monitoring Type [X] Visual [ ] Visual [ ] Visual [ ] Visual [ ] Visual
[ ] Continuous [ ] Continuous [ ] Continuous [ ] Continuous [ ] Continuous
(automatic sensors) (automatic sensors) (automatic sensors) (automatic sensors) (automatic sensors)
[ ] Other [ ] Other [ ] Other [ ] Other [ ] Other
- ------------------------------------------------------------------------------------------------------------------------------------
Monitoring [ ] Daily [ ] Daily [ ] Daily [ ] Daily [ ] Daily
Frequency [X] Weekly [ ] Weekly [ ] Weekly [ ] Weekly [ ] Weekly
[ ] Monthly [ ] Monthly [ ] Monthly [ ] Monthly [ ] Monthly
[ ] Other [ ] Other [ ] Other [ ] Other [ ] Other
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Describe the location, type, manufacturer's specifications (if applicable) and
suitability of any monitoring methods used other than visual monitoring:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 75
MAXTOR CORPORATION
- --------------------------------------------------------------------------------
Employee Chemical Safety & Training Program
- --------------------------------------------------------------------------------
Prepared By:
Integrated Engineering Services
January 1997
<PAGE> 76
TABLE OF CONTENTS
1. Introduction
2. Emergency Evacuation Procedures
3. Emergency Procedures
4. Hazard Communications Program
5. Injury & Illness Prevention Plan
6. Fire Safety
7. Electrical Safety
8. Hazardous Material Properties
9. Paths of Exposure
10. Hazardous Materials Classifications
11. Hazardous Identification Signs
12. Chemical Storage, Handling & Disposal
13. General Safety Rules
14. Responsible Agencies
2
<PAGE> 77
1. Introduction
It is our company policy to provide a safe workplace, we intend to accomplish
this through:
o Employee Training
o Written Programs
o Standard Operating Procedures
o Emergency Preparedness
o Engineering Controls
o Employee Feedback
This program will be made available upon request to
employees, their designated representatives, and Cal/OSHA
Officials. A written copy of this Hazard Communications
Program including chemical inventory, and Material Safety
Data Sheets will be kept on site and is located at:
Facilities Engineering Office
Location of Hazard Communications Program
A key aspect in making this program successful will be
identifying individuals whom have responsibility for
implementing, managing, and updating this program. The
following individual(s) will be our company's HazCom
Program Manager(s):
Naglaa Tahoun
Primary Hazcom Program Manager
Jeanne Wagner
Alternate Hazcom Program Manager
2. Emergency Evacuation Procedures
1. Building or Areas will be evacuated in the event of:
o Major Fire, Hazardous Materials Fire or Explosion
o Chemical, Gas, or Odor Release
o Major Earthquake
o Power Outage
o Bomb Threat
o Hostage or Shooting Incident
2. Evacuation can be announced by:
3
<PAGE> 78
o Fire Alarm
o Bull Horn
o Voice Command
3. In the event of evacuation all persons are to evacuate immediately
through the nearest safe exit and follow company evacuation
procedures.
4. No person shall leave until a roll call is taken.
5. After building is safely evacuated proper agencies must be
contacted. The following is a list of agencies that may need to be
contacted:
o Fire Department 911
o Police Department 911
o State Office of Emergency Services 1-800-852-7550
o Cal/OSHA 1-415-972-8515
4
<PAGE> 79
EAP - EMERGENCY ASSY. POINT.
GO TO THE NUMBERED EAP POINT,
1 THRU 5 IN THE PARKING LOT,
THAT CORRESPONDS WITH
THE SECTION NUMBER ASSIGNED
TO THE BUILDING THAT YOU ARE
LOCATED, AT THE TIME OF THE
EMERGENCY.
(INSERT MAP)
5
<PAGE> 80
(INSERT MAP)
Maxtor
510 Cottonwood
First Floor
6
<PAGE> 81
(INSERT MAP)
MAXTOR
510 Cottonwood
Second Floor
7
<PAGE> 82
3. Emergency Procedures
1. Fire or explosion:
o Minor Fire: evacuate area, extinguish (trained personnel
only), notify site supervisor as soon as conditions permit
o Major Fire, Hazardous Materials Fire or Explosion:
evacuate, alarm, 911, evacuation procedure
2. Chemical Spill or Release:
o Evacuate immediate danger area, assume worst case
o Check for human injuries - Call 911 if there are any
o Notify Emergency Response Team - if unavailable act as
stay on scene and act as coordinator
o If spill is not safe to clean up call 911 immediately
o If safe to do so, stay on scene to relate any pertinent
information to emergency responders
o If spill is easily and safely cleaned up, have a trained
individual clean it up
o Make sure whomever performs clean-up, follows proper
procedures, including use of personal protective equipment
o If conditions permit, keep a written record of events
3. Earthquake:
o Avoid areas where chemicals are stored or used
o Seek protection under tables
o Determine whether evacuation is necessary
o Report any injuries immediately
4. Injury:
o Know location of emergency equipment, first aid, etc.
o Treatable injury vs. Emergency situations
o Serious or Emergency Injuries call 911
o Notify Supervisor as soon as conditions permit
o Report all injuries to site supervisor regardless of
magnitude
o In cases of blood exposure notify site supervisor
immediately of hazard. Never attempt to clean up any
spilled blood.
o Bloodborne Hazards - AIDS, Hepatitis B, etc.
8
<PAGE> 83
4. Hazard Communications Program
1. Overview
o Required under California Code of Regulations Title 8
Section 5194 to inform employees of chemical hazards.
o The Hazard Communication Program is designed to transmit
information to employees regarding the physical and health
hazards of materials used in the workplace.
o The Program consists of three basic concepts: labeling,
Material Safety Data Sheets, and training.
o Location of Hazard Communications Binder.
o Name and telephone # of HazCom Program Manager.
2. Labeling
o Containers are clearly labeled as to the contents
o Appropriate physical and health hazard warnings are noted
(Flammable, Corrosive, etc.)
o Name and Address of the manufacturer/importer are listed
3. Secondary Containment
Secondary containers are any container, other than the
original, in which materials are placed, whether for
storage or use, including waste/disposal storage
containers. Secondary Containers must be labeled before
any chemicals are transferred into them. Labels must have
chemical trade or common name, and hazard warnings.
4. Material Safety Data Sheets
o Any chemical used or stored at facility must have a MSDS
filed in the Hazard Communications Program Binder.
o If a MSDS is incomplete or missing, one shall be requested
within 7 days in writing. If one is not received within 25
days Cal/OSHA must be notified, in writing.
o All MSDS's must contain information on the following:
1. Chemical Identity (chemical & common names)
2. Chemical ingredients
3. Primary route(s) of exposure
4. Physical and Chemical Characteristics
5. Fire and Explosion Hazards Data
6. Health Hazards Data, including exposure
symptoms
7. Reactivity Hazard Data
8. Special Hazards Data
9. OSHA and other permissible exposure limits
(PEL's)
10. Whether or not the material is a known
carcinogen
11. Safe handling precautions or control measures
12. Emergency and First Aid Procedures
9
<PAGE> 84
13. Name, Address, and telephone number of the MSDS
supplier, and date of MSDS.
o MSDS's shall be retained by employer for at least thirty
years after the discontinuation date.
5. Employee Training -- Training shall be conducted
o Upon implementation of this program
o Whenever a new hazard is introduced (new chemical or
procedure)
o Within 30 days of employer receiving an updated MSDS
containing information indicating a significant increased
risk or changes in the use of personal protective
equipment.
o Before a new employee begins work
6. Hazardous Non-Routine Tasks
Examples of hazardous non-routine tasks include building or tool
maintenance, spill clean-up, etc.
Employees shall not perform any non-routine tasks unless they have
been specifically trained at the task. Employees shall be given
information by their supervisor about hazards they may be exposed to
during such a task. This information shall include:
1. Specific Hazards
2. Protective/Safety Hazards
3. Measures the company has taken to reduce hazards,
ventilation, engineering controls, etc.
7. Unlabeled Pipes, equipment, etc.
It is our policy to label all pipes, containers, sinks, tools, etc.
with the contents, but if for any reason a task does involve an
unlabeled (or illegibly labeled) piece of equipment, pipe, container,
etc. it shall be treated as a hazardous non-routine task.
8. Informing Contractors
To ensure that contractors work safely at our facility, it is the
contractors contact persons responsibility to ensure that the
contractor is aware of the hazardous operations and substances that
they will be working around or with. Contractors shall be provided
with the following information:
1. Hazardous substances to which they may be exposed to
2. Precautions that the employees may take to lessen the
possibility of exposure to hazardous substances.
3. The location/availability of our Hazard Communications
Program
4. The name/availability of our HazCom Program Manager
5. Injury & Illness Prevention Program
Under federal law this company is required to have an Injury & Illness
Prevention Program (IIPP). The IIPP is written program for identifying,
evaluating, and preventing occupational injury & illness. There are four main
aspects to this program:
1. Investigation of all accidents, injuries, and illness on the job site.
2. Documentation and reporting of these injuries and illnesses. Cal/OSHA form
200 "Log of Occupational Injuries and Illness
3. Periodic inspections of the workplace and workstations
4. A system to allow for employee feedback and hazard identification
10
<PAGE> 85
5. Employee training - General safety, IIPP, etc.
11
<PAGE> 86
MAXTOR
ACCIDENT/INJURY REPORT
COMPLETE IMMEDIATELY AND FORWARD TO SECURITY
WITHIN 24 HOURS
Injured Employee ___________________________ Emp. No.: _________ Dept.__________
Job Title __________________Regular _____________ Temp _________ Agency ______
Dept. No. ______________ Ext. # _________________Supervisor/Ext. _______________
Date of injury _______________ Time of day _____________ a.m._____ p.m. _____
INJURED EMPLOYEE ADDRESS _______________________________________________________
(Street, Apt. No., City, State, Zip)____________________________________________
Phone ( ) ___________________ S.S.#____-_____-_____ DOH______________________
Date of hire _____________Date of birth ____________Average O/T hr./wk. ________
Where did injury occur? (bldg.) 510 2191 2121 (circle one)
If offsite Address: ____________________________________________________________
What was the employee doing when Injured? Be specific. Identify tools, or any
other equipment that the employee was using.____________________________________
________________________________________________________________________________
________________________________________________________________________________
How did the accident occur? Describe the events that resulted in injury. Tell
what happened and how it happened.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
12
<PAGE> 87
(EMERGENCY MEDICAL)
MAP
13
<PAGE> 88
7. Electrical Safety
1. Do not use extension cords for fixed equipment.
2. Do not use multiple extension cords or "power strips" in a single outlet.
3. Do not use flammable liquids within 3 feet of an outlet.
4. Always turn off electricity to equipment or electrical circuits before
performing maintenance.
5. Keep machine guards in place and maintain safety interlocks in operable
condition at all times. Shut down machines when adjusting, clearing jams,
changing parts or cartridges.
6. Use only electrical extension cords which are in good condition, have an
intact ground wire and are of the proper gauge for the service.
[Safety
Lockout/Tagout
Center]
14
<PAGE> 89
8. Hazardous Materials Properties
Density/Specific Gravity
Vapor density is an indicator of whether high concentrations of vapor will sink
to low areas or float and be dispersed. Materials with a specific gravity less
than 1 tend to sink. However, mechanical ventilation generally overcomes
gravity, followed by diffusion.
Vapor Pressure
Will indicate the relative rate that vapors evaporate which may affect the
amount of flammable vapors present or indicate the relative risk of an
inhalation hazard.
Flammable Range
In order to burn, the concentration of flammable vapor or gas must be between
the LEL and UEL. Examples:
<TABLE>
<CAPTION>
Chemical LEL UEL
-------- --- ---
<S> <C> <C>
Hydrogen 4.0% 80.0%
Acetone 2.6% 12.8%
Methanol 6.7% 36.0%
</TABLE>
Flash Point
The minimum temperature at which a liquid gives off enough vapor to form an
ignitable mixture with air. The lower the flash point the greater the hazard. If
a liquid has a flash point it must be considered a potential source of fuel.
Examples:
<TABLE>
<CAPTION>
Chemical Flash Point (degree F)
-------- -----------------------
<S> <C>
Acetone -4
Methanol 52
</TABLE>
Corrosivity/pH
The pH scale ranges from 0 to 14, and is used as a measurement of a material's
corrosive potential. A low pH indicates a strong acid. A high pH indicates a
strong base. A pH less than 2 or greater than 10 is typically required to
produce a corrosive reaction with skin tissue. However, for regulatory purposes,
a corrosive is generally considered as a material with a pH that prohibits it
from being discharged directly to the sanitary sewer (<6 or >10).
ACIDIC NEUTRAL BASIC
----------------------------------
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Toxicity
Toxicity is the ability of an agent to adversely effect an organism
Exposure is the amount of time or contact to a chemical
Risk = Exposure (dose) = As toxicity goes up required
---------------
Toxicity exposure to do harm goes down
15
<PAGE> 90
Everything is toxic ... it is the DOSE that will kill you.
Example: Vaccines
A large dose of the small pox virus will kill you, but a small dose is a vaccine
that will prevent the disease
Example: alpha-Bungarotoxin (Cobra Venom)
A small dose is a vaccine
A medium dose is a tranquilizer (still used for surgery) A large dose will kill
you
Not all toxic effects take place immediately there are two different types of
toxicity
Acute Toxicity is an immediate effect, i.e., if you inhale to much arsine you
will die within minutes, if not seconds.
Chronic Toxicity is a delayed effect, i.e., Repeated exposure to xylenes can
cause cancer 10 years from now.
Just because something does not make you immediately ill, it does not mean that
it will not harm or kill you! Always take extreme care when working with
chemicals. Always assume the worst case!
It is important to know and understand the toxicity and different health hazards
of different chemicals in your workplace. Spilling some Hydrofluoric Acid on
your arm is much different then spilling some Acetic Acid. You need to be aware
of the different Hazardous properties of the chemicals you work with.
NOTE: Just as the dose or concentration is pertinent to toxicity it is also
pertinent to other physical and health hazards also. For example: 95%
Hydrogen in air is extremely flammable 2% Hydrogen in air is not even
combustible 90% Benzoyl Peroxide is a highly unstable explosive 10%
Benzoyl Peroxide you put on your face! (acne cream)
9. Paths of Exposure
1. Inhalation Exposure
Inhalation or breathing through the lungs is the most important exposure
route in the workplace since it enables chemicals, small particles,
vapors or gases to travel into the blood stream quickly.
2. Dermal Exposure
When a worker's skin comes into contact with hazardous materials, two
effects may occur - local and systemic. Local affects occur at the point
of contact and may include:
o Irritation - Many chemicals will cause an immediate reddening or
rash upon contact.
o Tissue Damage - Corrosive acids and bases may eat into the skin and
cause tissue damage.
o Allergic Reactions - Chemicals such as nickel, formaldehyde and
isocyanates cause the skin to become hyper sensitive after repeated
exposure.
16
<PAGE> 91
Systemic (internal) effects may occur through absorption through the skin. Many
solvents are readily absorbed through the skin into the bloodstream and travel
to the kidney's, liver and nervous system.
3. Ingestion
Ingestion is normally typically encountered in one of two ways:
o Swallowing dust or particulates that were filtered out in the upper
respiratory tract.
o Unknowingly eating or drinking hazardous materials.
10. Hazardous Materials Classification
1. Flammable Materials (FL, FG, FS, CL) are gases, liquids, or solids
that ignite easily and burn rapidly when exposed to a ignition
source.
2. Compressed Gases may be cryogenic, gaseous, dissolved in a carrier
solvent, or liquefied compressed gases. They may have multiple
hazard characteristics. Even an inert gas like nitrogen presents an
asphyxiation hazard.
3. Reactive Materials (PYRO, UR, -W-) are solid or liquid materials
that may ignite spontaneously without an ignition source, under
spontaneous reaction or are reactive with water.
4. Oxidizers (OXY) are materials that evolve or generate oxygen at
ambient conditions or when exposed to heat. They pose a significant
fire hazard because they are fuel to the fire, large amounts of
oxygen can cause explosive conditions.
5. Corrosive Materials (COR, ACID, BASE) are materials that burn or
damage skin on contact.
6. Toxic & Highly-Toxic Materials (POISON, TOX, HT) are materials which
in small quantities can cause death or adverse health effects.
7. Radioactive Materials (alpha, gamma, beta emitters) are materials
which undergo transformations in their atomic nuclei.
17
<PAGE> 92
11. Hazard Identification Signs
NFPA Placards
Container Labels
18
<PAGE> 93
12. Chemical Storage, Handling & Disposal
1. Storage Requirements
o All hazardous materials must be stored within secondary containment.
o All flammable liquids shall be stored within fire-rated cabinets.
o Materials shall only be stored in approved locations.
o Incompatible materials must be stored separately.
19
<PAGE> 94
2. Chemical Handling
Always use personal protective equipment, i.e.
gloves, glasses, respirators, etc. when handling
hazardous materials.
1. GLOVES: See MSDS for each chemical
2. CLOTHING: See MSDS for each chemical
3. EYE PROTECTION: Splash proof chemical goggles and face shield shall be
worn whenever a chemical splash hazard exists.
4. RESPIRATORY PROTECTION: Where potential exists for exposure over
regulatory limits (see MSDS) respiratory protection is required. Note:
Improper use of respirators is dangerous. Airborne exposure should be
routinely evaluated, which may require periodic air sampling. Under
OSHA, 1910.20 employees have a legal right to obtain copies of air
sampling results from their employer.
Respirators can only be used if employer has a written program that
takes into account workplace conditions, and has requirements for
training, respirator fit testing, and medical exams, as described in
OSHA 1910.134.
Employees shall put on Protective Equipment BEFORE any work begins with
hazardous chemicals.
Employees shall be trained in proper use of protective equipment.
Protective gear that could have been exposed to hazardous chemicals shall be
washed thoroughly. Protective equipment shall be stored away form any
contamination hazards.
Standard Operating Procedures shall be followed at all times.
20
<PAGE> 95
INSERT HAZARDOUS MATERIAL INVENTORY STATEMENT
21
<PAGE> 96
same continued
22
<PAGE> 97
2. Chemical Handling, continued
First Aid must be started within seconds of contact of any form
SKIN CONTACT
1. In the event of skin contact, immediately wash with water for at least 15
minutes. Preferably for 20-30 minutes, or until medical attention arrives.
Contaminated clothing should be removed as quickly as possible while
washing.
4. Scub well and pay special attention to fingernails, including underneath if
exposure occurs.
5. Seek medical attention IMMEDIATELY.
EYE CONTACT
1. Flush eyes immediately with water while eye-lids are held apart, continue
for at least 15 minutes or until medical attention arrives.
2. Medical attention should be sought immediately.
3. If ambulance service is not available, continue to flush while traveling,
if possible.
If only one eye was exposed, take precautions while washing from exposing the
other exposed eye.
INGESTION
1. Always refer to MSDS for first aid response for chemical ingestion.
No food or drinks are allowed in areas containing chemicals.
SPILL RESPONSE
1. Evacuate any untrained personnel.
2. Protective equipment must be doned before attempting to clean up any spill.
3. Only persons wearing the appropriate personnel protection equipment are
allowed in area while clean up is occurring.
4. Follow Company Standard Operating Procedures (SOP's) for Hydrofluoric Acid
spill clean up.
5. Contaminated materials shall be disposed of in accordance with SOP's
Take care to prevent spill from going down any drain.
23
<PAGE> 98
CHART
Emergency Response/Contingency Plan
24
<PAGE> 99
2. Waste Disposal Guidelines
o No hazardous materials shall be disposed of down the drains
o Chemical wastes shall be collected in safety cans. In order to
prevent hazardous chemical reactions safety cans will be labeled
as to which materials can go in them.
Hazardous Waste
Flammable liquid containers must be properly bonded and grounded while
transferring materials from one container to another.
25
<PAGE> 100
CHART
Faculty Address
26
<PAGE> 101
13. General Safety Rules
o Employees are expected to maintain good housekeeping.
o Employees shall notify supervisor of any known hazards
immediately.
o All injuries shall be reported to supervisor as soon as
conditions permit.
o There shall be no unauthorized personnel in chemical storage and
use areas without written approval.
o Emergency telephone number is 911.
o No running, smoking, or horseplay is permitted anywhere in
facility.
o No chemicals are to be dumped onto land or down any sewer or
storm drain.
o Written approval must be received before Hotwork (any activity
that generates heat, open flames and/or sparks) begins.
o Whenever Hotwork occurs a designated person to provide fire watch
must be provided during activity and for 1 hour after activity
ceases.
14. General Safety Rules
Environmental Protection Agency (EPA)
The EPA is a federal agency established in 1970. It is responsible for
implementing and enforcing federal environmental laws and regulations such as
the Clean Air Act, Clean Water Act, and Superfund Amendments and Reauthorization
Act. Region IX (includes Bay Area) 415-744-1500
Department of Transportation (DOT)
The DOT is a federal agency which regulates the transportation of hazardous
substances. Specific requirements are imposed on 16000 hazardous materials.
California Department of Health Services (DHS)
Department of Toxins Substance Control (DTSC)
the DTSC is responsible for adopting and enforcing standards and regulations for
the handling, treatment, storage, and disposal of hazardous waste 916-325-0806
Occupational Health and Safety Administration (OSHA)
The Federal (OSHA) and State (Cal/OSHA) agencies are responsible for regulating
workplace hazards and protecting workers. Cal/OSHA Consultation Service
415-972-8515
Local Fire Department
27
<PAGE> 102
Primary responsibility is for emergency fire and medical response.
However, also is responsible for the emergency response involving the release of
hazardous materials. See local phone book.
Water Pollution Control Plant (POTW)
The wastewater treatment plant is a Publicly Owned Treatment Works
(POTW) and as such is responsible for the treatment of sanitary sewage. However,
since they discharge to the bay, the POTW regulates the types and quantities of
chemicals that can be discharged to the sanitary sewer.
Bay Area Air Quality Management District (BAAQMD)
The BAAQMD establishes air pollution standards and regulates the discharge and
abatement of such pollutants. 415-771-6000
Safety Training Feedback
please fill out, tear off, and return this sheet at the end of course
1. Do you have a good idea of our safety policy?
2. Were the printed materials adequate?
3. Was the instructor generally effective?
4. What aspects did you like the most?
5. What aspects did you like the best?
6. What aspects would you like to see covered more thoroughly?
7. Overall how would you rate the course on a 1-10 scale?
8. What would you do to make the course better?
28
<PAGE> 1
Exhibit 10.53
FORM 19
THE LAND TITLES ACT
(CHAPTER 157)
(SECTION 76)
LEASE
DESCRIPTION OF LAND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reference to Land Registrar Mukim Town Subdivision Lot Whole or Part
(If part only, give details)
Volume Folio
- ---------------------------------------------------------------------------------------------------------------------------
352 161 Mukim 18 11046 The whole of Lot 11046 of Mukim 18
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LESSOR
LESSOR
HOUSING AND DEVELOPMENT BOARD, a body corporate
incorporated under the Housing and Development Act and
having its office at HDB Centre, 3451 Jalan Bukit Merah,
Singapore 0315
HEREBY LEASES the registered estate or interest in the land
above described (hereinafter referred to as "the demissed
premises") to
THE LESSEE
LESSEE
MAXTOR SINGAPORE LIMITED, a company incorporated in Bahamas
Island and having its registered office at 36, Robinson
Road #17-00, City House, Singapore 0106 (Company
Registration No: 03305/F-G)
<PAGE> 2
TERM OF LEASE
as tenant fot the term of Thirty (30) years commencing from the 1st day of
December 1988, YIELDING AND PAYING therefor the yearly rent of Dollars Five
Hundred and Thirty Four Thousand and Seventy Eight ($534,078.00) without
deductions and in advance every quarter without demand commencing on the 1st day
of December 1988 and shall be at the rate of $30.00 per square metre per annum
from the 1st day of December 1988 (hereinafter referred to as "the Initial
Rent") which rate shall be subject to revision on the 1st day of December 1987
to a rate based on the market rent on the date of such revision determined in
the manner following but so that the increase shlall not exceed seven point six
percent (7.6%) of the Initial Rent. The yearly rent so revised in 1987 shall be
subject to revision every year from the 1st day of December 1987 and shall be at
the rate based on the market rent on the respective dates determined in manner
following but so that the increase shall not exceed seven point six percent
(7.6%) of the yearly rent for each immediately preceding year. The market rent
in this context shall mean the rent per square metre per annum of the said land
excluding the buildings and other structures erected thereon and shall be
determined by the Lessor on or about the dates mentioned and the decision of the
Lessor shall be final. SUBJECT to the following PRIOR ENCUMBRANCES and the
convenants and conditions hereinafter set out.
PRIOR ENCUMBRANCES NIL
CONVENTS AND CONDITIONS
The Lessee for itself and its successors and assigns hereby convenants
with the Lessor as follows: -
1. Not to demise, transfer, assign, mortgage, let, sublet, underlet, license or
part with the possession of the said land or any part thereof in whatsoever
manner and not to effect any form of reconstruction howsoever brought about
including any form of amalgamation or merger with or take-over by another
company, firm or body or party, without first obtaining the consent of the
Lessor in writing. Section 17 of the Conveyancing Law of Property Act (Chapter
81) shall not apply. Any consent, if granted by the Lessor shall be given on
such terms and conditions as the Lessor may in its entire and unfettered
discretion deem fit to impose and shall include -
(a) full revision of the rental to the prevailing market rate
from the date of assignment;
(b) payment of such administrative fee as determined by the
Lessor.
2. Not to use the said land or any part thereof for any illegal or immoral
purpose.
3. Not to use or to permit or suffer the said land or any building thereon to be
used otherwise than as a factory to manufacture high capacity Winchester Disk
Drives and Electronic
-2-
<PAGE> 3
Devices subject to the approval of the Competent Authority appointed under
Section 3 of the Planning Act.
4. Not to erect permit or suffer to be carried out any construction of chimneys
or ducts of any kind whatsoever in or at any part of the buildings for the
purpose of discharging smoke gas fume or any other substance connected directly
or indirectly with the manufacturing processes.
5. Not without the consent in writing of the Lessor to affix or exhibit or erect
or paint or permit or suffer to be affixed or exhibited or erected or painted on
or upon any part of the exterior of the demised premises or of the external
walls or rails or fences thereof any nameplate signboard placard poster or other
advertisement or hoarding.
6. To make reasonable provision against and be responsible for all loss injury
or damage to any person or property including that of the Lessor for which the
Lessee may be held liable arising out of or in connection with the occupation
and use of the demised premises and to indemnify the Lessor against all
proceedings claims costs and expenses which he may incur or for which he may be
held liable as a result of any act neglect or default of the Lessee its servants
contractors or agents.
7. Not to effect a change of name without the prior consent in writing of the
Lessor PROVIDED THAT on every change of name the Lessee shall pay to the Lessor
a fee to be specified by the Lessor in relation to such consent.
8. Not to install and/or use any electrical installations, machines or apparatus
that may cause or causes heavy power surge, high frequency voltage and current,
air borne noise, vibration or any electrical or mechanical interference or
disturbance whatsoever which may prevent or prevents in any way the service or
use of any communication system or affects the operation of other equipment,
installations, machinery, apparatus or plants of other Lessees and in connection
therewith, to allow the Lessor or any authorized persons to inspect at all
reasonable times, such installations, machines or apparatus in the demised
premises to determine the source of the interference or disturbance and
thereupon, to take suitable measures, at the Lessee's own expense, to eliminate
or reduce such interference or disturbance to the Lessor's satisfaction, if it
is found by the Lessor or such authorized person that the Lessee's electrical
installations, machines or apparatus is causing or contributing to the said
interference or disturbance.
9. To indemnify the Lessor against any claims, proceedings, action, losses,
penalties, damages, expenses, costs, demands which may arise in connection with
Clause 8 above.
10. To make good and sufficient provision for the safe and efficient disposal of
all waste including but not limited to pollutants generated at the said land to
the requirements and satisfaction of the Lessor and other relevant Government
authorities PROVIDED THAT in the event of any default by the Lessee under this
convenant the Lessor may carry out such remedial measures as he thinks necessary
and all costs and expenses incurred thereby shall be recoverable forthwith from
the Lessee as a debt.
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<PAGE> 4
11. On or before the execution of the lease, the Lessee shall supply to the
Lessor in writing a list of names of its existing shareholders and particulars
of the classes of shares held by each and every shareholder and the value
thereof and such list shall be duly certified to be correct by a director of the
company.
12. The Lessor further covenants with the Lessee that he shall at the written
request of the Lessee made not less than twelve (12) months before the expiry of
the said term but not earlier than the twenty-eighth (28th) year of said term
grant to the Lessee a Lease of the said land for a further term of thirty (30)
years (hereinafter referred to as "the further term") which shall commence from
the data immediately following the expiration of the said term on the same terms
and conditions and containing like convenants as are herein contained with the
exception of the present covenant for renewal or such variations or
modifications as shall be imposed by the Lessor PROVIDED THAT: -
(i) there be no existing breach(es) or non-observance(s) of any of the
covenants and conditions herein contained on the part of the Lessee to be
observed or performed)
(ii) the rental payable for the further term shall be as set out
hereunder: -
(a) The yearly rent for the further term shall be at the rate
based on the market rent at the commencement of the further term (hereinafter
referred to as the "Second Initial Rent") which rate shall however be subject to
a revision on the 1st day of December 2016 to a rate based on the market rent on
the date of such revision determined in the manner following but so that the
increase shall not exceed seven point six percent (7.6%) of the Second Initial
Rent.
(b) The yearly rent so revised shall be subject to revision
every year from the 1st day of December 2016 and shall be at the rate based on
the market rent on the respective dates determined in the manner following but
so that the increase shall not exceed seven point six percent (7.6%) of the
yearly rent for each immediately preceding year.
(c) The market rent and the time of payment of the yearly rent
shall be as aforesaid.
(d) Any demise, transfer, assignment or parting of possession of
the said land or any part thereof by the Lessee in whatsoever manner within five
(5) years of the commencement of the further term will be approved by the Lessor
only upon payment by the Lessee of a fee (hereinafter called the "additional
fee") which shall be equivalent to the value of the buildings and there shall
also be a full revision of the rental to the prevailing market rate from the
date of assignment and payment of such administrative fee as determined by the
Lessor as provided under Clause 1 herein contained. The value of the buildings
shall be determined by the Lessor alone and the Lessor's assessment shall be
final and conclusive and not be subject or open to review by the Lessee.
PROVIDED THAT the Lessee shall not be required to pay the additional fee for any
demise, transfer, assignment or parting with possession of the said land or any
part thereof by the Lessee in whatsoever manner after the aforesaid five (5)
years period.
-4-
<PAGE> 5
(e) All costs expenses charges legal or otherwise including
stamp duty and the Lessor's legal costs of or connected with the preparation
completion and registration of the Lessee for the further term of thirty (30)
years shall be borne by the Lessee.
13. To perform observe and be bound by: -
(a) the covenants, conditions and powers implied by law in instruments
of lease or to such of them as are not expressly negatived or modified by this
Instrument on the Memorandum of Lease hereinafter referred to;
(b) the covenants and conditions set forth in the Memorandum of Lease
filed in the Registry of Titles and numbered as ML/24 all of which terms
covenants and conditions shall form part of the Instrument as if fully set out
herein and shall apply insofar as they are not expressly negative or modified by
this Instrument.
DATE OF LEASE 28th March 1991
[SEAL]
EXECUTION OF The COMMON SEAL of )
LESSOR HOUSING AND DEVELOPMENT )
BOARD was hereunto affixed in )
the presence of:- )
/s/ Dr. Lim Hian Kiang MEMBER
--------------------------
Dr. Lim Hian Kiang
/s/ Tan Hian Hwee OFFICER
--------------------------
Tan Hian Hwee
EXECUTION OF The COMMON SEAL of )
LESSER LESSEE was hereunto affixed in )
the presence of:- )
/s/ James M. McCoy DIRECTOR
--------------------------
James M. McCoy
/s/ David M. Kowalski SECRETARY
--------------------------
David M. Kowalski
CERTIFICATE OF DUPLICATION OF INSTRUMENT
- ----------------------------------------
I AUDREY YANG OON HUI of Sant Singh & Partners hereby certify that I have
carefully compared this duplicate instrument with the original and that it is a
true copy thereof.
/s/ Audrey Yang Oon Hui
-------------------------
27/6/92
I, CHAN WENG KEE the Solicitor for the Lessor hereby certify, pursuant to
Section 54 of the Land Titles Act, that this instrument is correct for the
purposes of the said Act.
I, AUDREY YANG OON HUI the Solicitor for the Lessee hereby certify,
pursuant to Section 54 of the Land Titles Act, that this instrument is correct
for the purposes of the said Act.
I, AUDREY YANG OON HUI the Solicitor for the Lessee hereby certify that
according to the information supplied to me within the last four (4) weeks by
the Chief Planner, URA the within land is zoned "Industry" and the within
premises is for industrial use.
Dated this 1st day of June 1992.
/s/ Audrey Yang Oon Hui
-------------------------
Audrey Yang Oon Hui
I, AUDREY YANG OON HUI the Solicitor for the Lessee hereby certify that
the place of incorporation of the Lessee as abovementioned specified in the
within instrument have been verified from the Certificate of Incorporation
produced and shown to me and are found to be correct.
Dated this 28th day of March 1991.
/s/ Audrey Yang Oon Hui
-------------------------
Audrey Yang Oon Hui 8/19
-5-
<PAGE> 1
EXHIBIT 10.54
SAP KOREA
R/3 SOFTWARE END-USER VALUE LICENSE AGREEMENT
THIS R/3 SOFTWARE END-USER VALUE LICENSE AGREEMENT, together with all Exhibits
and Appendices hereto (hereinafter referred to as "Agreement") is made effective
between SAP Korea Ltd. (hereinafter referred to as "SAP") and Hyundai
Information Technology Co., Ltd. (hereinafter referred to as "Licensee") in
regard to a license to Use (as defined herein) the R/3 Software (as defined
herein) upon the terms and conditions hereinafter set forth. The effective date
of the Agreement and the official name of Licensee are stated in the last page
of the Agreement.
RECITAL
WHEREAS, SAP and Licensee have concluded a SAP Korea R/3 Software End-User Value
License Agreement signed on 30 June 1996 (hereinafter referred to as "End-User
Agreement").
WHEREAS, SAP sent Licensee a letter titled "ADDITIONAL MATTERS AS TO SAP KOREA
R/3 SOFTWARE END-USER VALUE LICENSE AGREEMENT" dated 7 October 1996 (hereinafter
referred to as "Letter").
WHEREAS, both SAP and Licensee desire to conclude the Agreement to supersede the
terms and conditions of the End-User Agreement and the Letter into the Agreement
so that both parties hereto can improve and expand the business relations
between them.
WHEREAS, SAP and Licensee agree that Licensee is the only counter-party herein
for the Agreement with SAP for any companies within the Hyundai Group as set out
in Exhibit B.
NOW, THEREFORE, in consideration of the premises and mutual agreements herein
contained, SAP and Licensee agree as follows:
1. DEFINITIONS.
1.1. "ABAP/4 Development Workbench Users" means those individuals, who by
password allocation, are authorized to log on to the Software to use the ABAP/4
Development Workbench tools to create Modifications and Extensions to the
Software and in-house developments. Such Users may also be referred to as "D/W
Users". Each D/W User must also be licensed as a Basis/Workflow User.
1.2. "Affiliate" means a corporation located in the Territory controlling,
controlled by or under common control with Licensee. For purposes of this
definition, "control" means the power to direct the management or policies of an
entity, directly or indirectly, through the ownership of securities.
"Controlling" and "controlled" have corresponding meanings. Any such corporation
shall be considered an Affiliate for only such time as such relationship
continues to exist. Affiliates shall mean the companies in the Hyundai Group as
set out in Exhibit B and their future successors.
<PAGE> 2
1.3. "Application Database" means an integrated set of files used with the
Software which contain data and information for supporting the business
operations of Licensee and its authorized Affiliates, including master data and
associated transaction detail, system tables, and internal control information.
An Application Database shall not contain more than one Third Party Database
management system.
1.4. "Application Server" means each individual server connected to each
Designated Unit into which the Software is downloaded from such Designated Unit
for presentation to a computer terminal or workstation.
1.5. "Basis/Workflow Users" means those individuals, who by password allocation,
are authorized to log on to the Software solely for the purpose of executing the
following transactions (i) e-mail; (ii) calendar functions; (iii) entering
travel arrangements and expenses; (iv) document management including optical
archiving; (v) workflow organizational management (vi) monitoring and
administration of the Software; (vii) creating IDocs; (viii) entry and approval
of vacation applications; (ix) initializing workflows; and (x) in the event
Human Resources functionality is licensed, all transactions contained in such
Human Resources functionality.
1.6. "Correction Level" means an update to, correction of, or further
developmental work in the Software as between Versions and is identified by the
letter following the Version identifier (e.g., 2.1A).
1.7. "Designated Site" means those facilities of Licensee or of Affiliate(s)
located in the Territory in which one or more Designated Units are located and
which are identified in Appendices to this Agreement.
1.8. "Designated Unit" means each individual computer located at a Designated
Site in which the Software and the Third Party Database are installed. Each
Designated Unit must be approved by SAP as compatible with the Software and the
Third Party Database and must be identified as specified in Appendices hereto.
1.9. "Documentation" means SAP's standard documentation, in human or
machine-readable format in any medium, which is delivered to Licensee under this
Agreement including SAP's standard manuals, program listings, data models, flow
charts, logic diagrams, input and output forms, functional specifications and
instructions, and complete or partial copies of the foregoing.
1.10. "Extension" means an addition to the Software which does not require a
Modification.
1.11. "Information Users" means those individuals, who by password allocation,
are authorized to log on to the Software solely to "read only" Software
transactions for internal information purposes and are not authorized to input
data, write data, or execute Software transactions. Each Information User must
also be licensed as a Basis/Workflow User.
1.12. "Korea" means the Republic of Korea.
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<PAGE> 3
1.13. "Modification" means a change to the Software which changes the source
code.
1.14. "Multiple Utilization" means the installation of the Software on more than
one Designated Unit for Productive Use, or the setting up of more than one
Application Database on one Designated Unit for Productive Use. Multiple
Utilization of the Software may subject Licensee to payment of additional
license fees.
1.15. "Named Users" means those individuals who by password allocation are
authorized to log on to the Software and execute Software transactions. Named
Users may also be referred to as "Operational Users". Each Named User must also
be licensed as a Basis/Workflow User.
1.16. "Non-Productive Use" means Use of the Software solely for Licensee's or an
authorized Affiliate's internal training or testing.
1.17. "Productive Use" means Use of the Software solely to operate Licensee's or
an authorized Affiliate's business, including Electronic Data Interchange
transactions and developmental work.
1.18. "Program Concepts" means the concepts, techniques, ideas and know-how
embodied and expressed in any computer programs or modules included in the
Software, including the structure, sequence and organization of such programs or
modules.
1.19. "Proprietary Information" means: (i) with respect to SAP: the Software and
the Documentation and any complete or partial copies thereof, the Program
Concepts, SAP licensers' Third Party Database, any other third-party software
licensed with or as part of the Software ("Other Third Party Software"),
benchmark results, and any other information identified or reasonably
identifiable as confidential and proprietary information of SAP, SAP AG, or
their licensers ("SAP Proprietary Information"); and (ii) with respect to
Licensee: information identified or reasonably identifiable as the confidential
and proprietary information of Licensee
("Licensee Proprietary Information"), provided that any part of the SAP or
Licensee Proprietary information which: (a) is or becomes publicly available
through no act or failure of the other party, or (b) was or is rightfully
acquired by the other party from a source other than the disclosing party prior
to receipt from the disclosing party, or (c) becomes independently available to
the other party as a matter of right shall be excluded.
1.20. "Release" means each issuance of the Software by SAP AG which incorporates
SAP AGs most recent technological functionality and is identified by the numeral
to the left of the decimal point (e.g., 2.0).
1.21. "Requisition and Confirmation Users" means those individuals, who by
password allocation, are authorized to log on to the Software solely for the
purpose of submitting purchase requisitions or entering order completion
confirmations. Such Users may also be referred to as "R/C Users". Each R/C User
must also be licensed as a Basis/Workflow User.
-3-
<PAGE> 4
1.22. "SAP AG" means SAP Aktiengesellschaft, a German corporation, having
offices located at Neurottstrasse 16, D-69190 Walldorf, Germany and the parent
company of SAP.
1.23. "Single Utilization" means Productive Use and Non-Productive Use of the
Software on one Designated Unit with one Application Database.
1.24. "Software" means: (i) all R/3 software specified in agreed upon Appendices
hereto, in machine- or human-readable form, developed by or licensed to SAP AG
and delivered to Licensee hereunder, (ii) any Releases, Versions, or Correction
Levels of the Software as contemplated by this Agreement and (iii) any complete
or partial copies or replacements of any of the foregoing.
1.25. "Territory" means the country of Korea and any additional countries as
agreed upon in advance in writing by the parties as set out in Exhibit A
1.26. "Third Party Database" means a third-party proprietary database described
in Section 2.5.
1.27. "Use" means to load, execute, employ, utilize, store, or display the
Software. Use is deemed to occur on the Designated Unit(s) where any of such
processes occur and at any Application Server or computer terminal or
workstation that initiates or is activated by these processes.
1.28. "Users" means any combination of Named, Information, R/C, D/W or
Basis/Workflow Users licensed under this Agreement. Each User must be separately
licensed for Use in each functional block of the Software required and for each
Licensee company code of each Application Database for which access to the
Software is required.
1.29. "Version" means each issuance of each Release of the Software developed by
SAP AG which has incorporated further development work within the technology of
that Release and is identified by the numeral to the right of the decimal point
(e.g., 2.1).
2. LICENSE GRANT.
2.1. Right to Use.
(a) Subject to this Agreement SAP grants and Licensee accepts a
non-exclusive, nontransferable license to Use the Software, the Documentation,
the Third Party Database and other SAP Proprietary Information provided by SAP
to Licensee for Productive and Non-Productive Uses. Licensee agrees that this
license does not permit Licensee to: (i) Use the Software and the Third Party
Database for a service bureau application; or (ii) sublicense, or otherwise
transfer, assign, or rent the Software or the Third Party Database.
(b) Licensee agrees to install the Software and the Third Party Database
only on Designated Unit(s) located at Designated Site(s) as agreed to by the
parties in Appendices hereto. Licensee further agrees to Use the Software and
the Third Party Database only in accordance
-4-
<PAGE> 5
with the Documentation. Licensee may connect multiple Application Servers to
each Designated Unit and connect a network of computer terminals and
workstations to the Application Servers.
(c) Licensee may transfer the Software and the Third Party Database from
one Designated Unit to another at a licensed Designated Site upon prior written
notice to SAP. The Software and the Third Party Database must be promptly
deleted in its entirely from the Designated Unit no longer in Use and from each
archival and back-up copy for that Designated Unit.
(d) If Licensee is unable to Use the Software and the Third Party
Database on a Designated Unit because of conditions beyond its control, Licensee
may temporarily install the Software and the Third Party Database on equivalent
equipment located within the Territory until such condition is corrected;
provided that (i) Licensee takes the same measures with respect to the temporary
installation to prevent unlicensed access to and Use of the Software and the
Third Party Database; and (ii) Licensee shall provide written notice to SAP
within two business days of such installation.
(e) Licensee is licensed to install at the Designated Site no more than
four copies of the Software and the Third Party Database on Designated Unit(s)
for Non-Productive Use. Designated Unit(s) utilized for Non-Productive Use of
the Software and the Third Party Database must be of the same type as those used
at the Designated Site for Productive Use. Only one copy of the Software and one
copy of the Third Party Database is licensed for Productive Use on each
Designated Unit of the Designated Site, unless otherwise agreed upon in writing
by SAP.
2.2. Use of Software by Affiliates. SAP agrees that Affiliates may Use the
Software, the Documentation, the Third Party Database and other SAP Proprietary
Information; provided that prior to any Affiliate's Use of the Software, the
Documentation, the Third Party Database and other SAP Proprietary Information:
(i) each Affiliate shall sign and deliver to SAP a copy of Appendix 2 to this
Agreement (in the form attached hereto) certifying its agreement to be bound by
the terms herein; and (ii) such Use by such Affiliate shall be subject to the
following: (A) Licensee accepts responsibility for the acts or omissions of such
Affiliates as if they were Licensee's acts or omissions; (B) Licensee shall
indemnify SAP and SAP AG against losses or damages suffered by SAP or SAP AG
arising from breach of this Agreement by any such Affiliate as if effected by
Licensee; and (C) such Use shall not constitute an unauthorized exportation of
the Software, the Documentation, the Third Party Database and other SAP
Proprietary Information under all applicable laws and regulations.
2.3. Audit Right.
(a) The maximum number of Users applicable to the Software licensed
hereunder shall be specified in Appendices to this Agreement. Licensee shall
promptly provide written notice to SAP if the number of Users exceeds such
maximum number.
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<PAGE> 6
(b) Licensee and its authorized Affiliates shall allow access to the
Software, the Documentation, the Third Party Database and other SAP Proprietary
Information provided to Licensee and/or Affiliates only to employees or agents
of Licensee or its authorized Affiliates acting within the scope of a formal
employment or agency relationship.
(c) During normal business hours and at any time during which the
Software, the Documentation, the Third Party Database and other SAP Proprietary
Information are being utilized, SAP, or its authorized representatives or
licensers, shall have the right upon reasonable advance notice, to enter into
the premise(s) of Licensee or any Affiliate and to audit and inspect Licensee's
or any Affiliate's utilization of such items, in order to verify compliance with
the terms of this Agreement.
2.4. Archival Copy; Restriction on Copies; Legends to be Reproduced.
(a) Licensee may make one copy of the Software and the Third Party
Database at each Designated Site for archival purposes and such number of backup
copies of the Software and the Third Party Database consistent with Licensee's
normal periodic backup procedures.
(b) Licensee may reproduce or copy any portion of the Documentation into
machine-readable or printed form for its internal use only as required to
exercise its rights hereunder.
(c) Licensee shall include SAP's and SAP's Third Party Database
licensers' copyright trademark, service mark, and other proprietary notices on
any complete or partial copies of the Software, the Documentation, the Third
Party Database or other SAP Proprietary Information in the same form and
location as the notice appears on the original work.
2.5. Runtime License for Application Database. The Software requires a Third
Party Database which may be licensed through SAP (the "Runtime License") or
directly as a full license ("Full License") from a Third Party Database licenser
approved by SAP. Licensee shall certify in an Appendix to this Agreement either
that it shall use and maintain the Runtime License from SAP or that it has
obtained and will maintain a Full License from a Third Party Database licenser.
In the event Licensee obtains a Full License directly from a Third Party
Database licenser, the license grant in this Section 2 shall be restricted to
such extent required to implement those restrictions imposed on Licensee
directly by such Third Party Database licenser. This Agreement shall terminate
automatically if, for any reason: (i) Licensee fails to obtain or maintain a
Runtime License or Full License; or (ii) Licensee's Runtime License or Full
License terminates prior to the termination of this Agreement SAP makes no
representations or warranties as to the Third Party Database or its operation.
3. DELIVERY AND INSTALLATION.
3.1. Delivery. The Licensed number of copies of the Software and the Third Party
Database in machine-readable format and the Documentation, shall be delivered to
Licensee's Designated Sites during the period specified in Appendices hereto
("Delivery").
3.2. Installation; Support Services.
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<PAGE> 7
(a) Licensee shall be responsible for installation of the Software and
the Third Party Database. At Licensee's request and on terms to be agreed upon,
SAP shall install the Software and the Third Party Database. SAP's installation
services are limited to loading the Software and the Third Party Database into
the Designated Unit and testing the Software using SAP's standard set of test
data. Licensee shall be responsible for configuring and installing any required
disk storage systems, network software, Application Servers, Designated Units,
and computer terminals and workstations prior to installation of the Software
and the Third Party Database. Installation shall be deemed successful and
completed when the Software and the Third Party Database are loaded on a
Designated Unit and are ready for Use.
(b) At Licensee's request and on terms to be agreed upon separately, SAP
may agree to provided pre-installation support installation support training,
and consulting services for the Software.
(c) On the basis that support services shall be chargeable, SAP shall
make its best efforts to secure qualified and eligible resources for Licensee.
4. PRICE AND PAYMENT.
4.1. License Fees. In consideration of the license granted hereunder, Licensee
shall pay to SAP license fees as set forth in Appendix 1 hereto ("License
Fees"). The amount of License Fees shall be calculated based on the total number
of Users, the Software and the Third Party Database licensed, and the payment
terms for such License Fees shall be specified in Appendix 1 hereto. Fees for
Maintenance Services ("Maintenance Fees") shall be paid as set forth in Section
7.4.
4.2. Taxes. License and Maintenance Fees and other charges described in this
Agreement and its Appendix, or in SAP's most recent list of prices and
conditions, do not include national, provincial, municipal or local sales, use,
property, excise, consumption, service, import withholding, value-added or other
taxes now or hereafter levied, all of which shall be for Licensee's account. Any
taxes, duties or amounts in lieu thereof paid or payable by SAP in respect of
any such taxes or duties on such fees or charges (excepting only taxes on net
income) shall be added to Licensee's payment obligations as an additional fee
which shall be due within thirty days after dispatch of SAP's invoice to
Licensee therefor.
4.3. Expenses. Daily fees, pre-approved travel expenses, and incidental expenses
relating to support services shall be paid as set forth in SAP's then current
List of Prices and Conditions. SAP shall bill such fees and expenses monthly,
attaching time sheets or other records customarily used by SAP.
5. TERM AND TERMINATION.
5.1. Term. This Agreement and the license granted hereunder shall become
effective on the effective date stated in this Agreement upon execution by both
parties and shall continue in effect thereafter unless terminated under Section
5.2.
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5.2. Termination. This Agreement and the license granted hereunder may be
terminated upon the earliest to occur of the following: (i) thirty days after
Licensee gives SAP written notice of Licensee's desire to terminate this
Agreement; (ii) thirty days after SAP gives Licensee notice of Licensee's
material breach of any of the Agreement (other than Licensee's breach of its
obligations under Sections 6 or 12, which breach shall result in immediate
termination), including more than thirty days delinquency in Licensee's payment
of any money due hereunder, unless Licensee has cured such breach during such
thirty day period; (iii) immediately if any of the following events exists or
occur with respect to Licensee: (A) a petition for attachment or injunction,
whether provisional or permanent public sale, or a proceeding in bankruptcy,
composition, rearrangement or reorganization has been filed, or any liquidation
has commenced; (B) any demand for payment of unpaid taxes or assessments has
been received, or any attachment to secure the payment of such taxes or
assessment has been levied; (C) competent authorities have ordered to suspend
the business or to revoke or otherwise terminate any permits, rights, or
privileges required for the conduct of the business; (D) any resolution of the
assignment or cessation of the whole or material part of business has been made;
(E) any note or check has been dishonored; or (F) the assets, business, credit
and the like has been seriously impaired, or there is any indication leading to
a reasonable belief of the likelihood of such impairment.
5.3. Effect of Termination. Upon any termination of this Agreement Licensee
shall immediately pay all amounts due to SAP; Sections 6, 8.6, 9, 10, 11, 13.6,
and 13.8 shall survive such termination; Licensee's rights under Section 2 shall
immediately cease; and SAP and Licensee each shall perform its obligations under
Section 6.3.
5.4. No Refund. In the event of any termination hereunder, Licensee shall not be
entitled to any refund of any payments made by Licensee, except as expressly
stated otherwise in this Agreement
6. PROPRIETARY RIGHTS.
6.1. SAP Proprietary Information.
(a) Licensee acknowledges and shall cause its authorized Affiliates to
acknowledge in writing that ownership of and title in and to all intellectual
property rights, including patent, trademark, service mark, copyright and trade
secret rights, in the SAP Proprietary Information are and shall remain in SAP
and SAP AG and their respective licensers. Licensee acquires only the right to
Use the SAP Proprietary Information under the terms and conditions of this
Agreement and does not acquire any ownership rights or title in or to the SAP
Proprietary Information and that of their respective licensers.
(b) Licensee shall not copy, translate, disassemble, or decompile the
Software and the Third Party Database, nor create or attempt to create, by
reverse engineering or otherwise, the source code from the object code of the
Software and the Third Party Database or use the object code or source code of
the Software and the Third Party Database to create a derivative work, unless
authorized in writing by SAP. In the event source code is provided to Licensee,
SAP, in its sole discretion, reserves the right to delete, or to require the
deletion of, such source code and all copies thereof from Licensee's Designated
Unit(s), Application Server(s), and computer
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terminals or workstations, data files, and archival and backup copies whenever a
future Release, Version, or Correction Level provides for like functionality in
an object code formal Other than as specified herein, any tools licensed with or
included in the Software may not be copied, in whole or in part without the
express written consent of SAP.
(c) Licensee shall not remove any proprietary, copyright trademark, or service
mark legend from the Software, the Documentation, the Third Party Database or
other SAP Proprietary Information.
(d) Licensee shall maintain a log of the number and location of all originals
and copies of the Software and the Third Party Database. The inclusion of a
copyright notice on any portion of the Software , the Documentation, the Third
Party Database or other SAP Proprietary Information shall not cause or be
construed to cause it to be a published work.
(e) All Modifications and Extensions to the Software, and all changes and
additions to the Documentation shall be considered part of the Software and the
Documentation for purposes of this Section 6.
6.2. Protection of Proprietary Information. In order to protect the rights of
SAP, SAP AG and their licensers and Licensee in their respective Proprietary
Information, SAP and Licensee agree as follows:
(a) Neither party shall, without the other party's prior written consent
disclose, provide, or make available any of the Proprietary Information of the
other party in any form to any person, except to bona fide employees, officers,
directors or consultants of such party whose access is necessary to enable such
party to exercise its rights hereunder. Each party agrees that prior to
disclosing any Proprietary Information of the other party to any consultant it
shall obtain from that consultant a written acknowledgment that such consultant
shall be bound by the same terms as specified in this Section 6 with respect to
the Proprietary Information.
(b) Licensee and SAP acknowledge that any disclosure to third parties of
Proprietary Information may cause immediate and irreparable harm to the owner of
the Proprietary Information; therefore, each party agrees to take all reasonable
steps and protective precautions to protect the Proprietary Information from
disclosure to third parties.
6.3. Duties Upon Termination. Upon any termination hereunder, Licensee and its
authorized Affiliates shall immediately cease Use of the Software, the
Documentation, the Third Party Database and other SAP Proprietary Information
and shall irretrievably delete and/or remove such items from all Designated
Units, Application Servers, computer terminals, workstations, data files, and
Designated Sites. Within ten days after any termination, Licensee shall deliver
to SAP at Licensee's expense (adequately packaged and insured for safe delivery)
or, at SAP's request destroy all copies of the SAP Proprietary Information in
every form. Licensee further agrees to erase the Software, the Documentation,
the Third Party Database and other SAP Proprietary Information from any storage
media. Licensee agrees to have one of its officers, with
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the express authority to make such a representation, certify in writing to SAP
that Licensee and each of Licensees authorized Affiliates has performed the
foregoing. Within ten days after the date of termination, SAP shall return the
Licensee Proprietary Information to Licensee.
6.4. Modifications and Extensions.
(a) Licensee may make Modifications and Extensions for Use on Designated
Units under the terms set forth in this Section 6.4.
(b) In the event Licensee without SAP's participation develops any
Extension or Modification (hereinafter referred to as "Licensee Extension" or a
"Licensee Modification".) to the Software, Licensee shall have all rights, title
and interest in such Licensee Extension or Licensee Modification subject to
SAP's rights in the Software. Licensee agrees, however, that such Licensee
Extension or Licensee Modification will be used solely in connection with
Licensees and its Affiliates' business operations, and that such Licensee
Extension or Licensee Modification will not be marketed, licensed or
sublicensed, sold, assigned, or otherwise transferred or made available to any
third party or other entity, without the express prior written consent of SAP,
which consent shall not be unreasonably withheld. Licensee agrees to offer SAP
the right of first refusal to any license to or assignment of such Licensee
Extension or Licensee Modification and SAP agrees to negotiate in good faith for
a mutually agreeable license or other arrangement for such rights.
(c) In the event SAP develops either independently, or jointly with
Licensee, any Extension or Modification to the Software, such Extension or
Modification shall be the exclusive property of SAP and SAP AG, and Licensee
will not grant either expressly or implicitly, any rights, title, interest or
licenses to such Modifications or Extensions to any third party. Licensee shall
be entitled to Use such Modification or Extensions on the Designated Unit (s) at
the Designated Site(s) under the terms set forth in this Agreement.
(d) The parties hereto agree that the granting of any rights, title, or
interest to Licensee in any Extension or Modification (including Licensee
Extensions and Licensee Modifications) shall not be construed by the parties
hereto, or any court of law, to mean that SAP has granted or given up any
rights, title, or interest in or to the SAP Proprietary Information or any part
thereof.
(e) Licensee agrees that it will not modify the Third Party Database and
any other provided third-party software hereunder, unless expressly authorized
in writing by such third-party vendor.
(f) In the event when Licensee carries out Modifications, Licensee shall
require a set up code from SAP for each Modification and shall register all
Modifications to the Software to SAP prior to making such Modifications.
Modifications may be used only on the Designated Units).
(g) Licensee agrees to: (i) keep and adequate and current records of all
Software Modifications (which records shall be made reasonably available to
SAP); (ii) promptly disclose
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to SAP and provide copies to SAP of any Software Modification in which SAP or
SAP AG has ownership rights; and (iii) insert in all copies of the Software as
modified all copyright trade secret or other notices thereon or therein as SAP
may from time to time direct.
7. MAINTENANCE.
7.1. Maintenance Services.
(a) Following the expiration of the Warranty Period (as defined in
Section 8), and for such period as Licensee may elect in writing, but only for
so long as SAP makes such services generally available in Korea, Licensee may
request maintenance services (Maintenance Services') from SAP with respect to
the Software. Maintenance. Services by SAP, unless expressly agreed otherwise in
writing, are limited in total to four (4) Designated Sites which shall be
specified in Appendix 1 hereto. Maintenance Services include the delivery of
Releases and Versions, the correction of defects, and SAP's On-line Software
Services, and, if separately purchased at fees and terms to be agreed upon,
SAP's Early Watch Services. In order to receive Maintenance Services hereunder,
Licensee at its own expense must make all required remote support and update
connections to each Designated Unit as requested by SAP.
(b) Maintenance Services shall not include the other services referenced
in Section 7.3 and shall be offered only for the most recent Version and the
Version immediately prior thereto. Whenever a new Release shall become
commercially available, Maintenance Services will be offered for such new
Release and the latest Version of the prior Release only until such time as a
new Version becomes available.
7.2. New Releases and Versions. Upon Licensee's request and provided that
Licensee has purchased Maintenance Services from SAP, SAP shall deliver new
Releases and Versions and related Documentation to the Licensee at the
Designated Sites for which SAP has Maintenance Services responsibility.
Maintenance Services do not include the delivery of any software and
documentation which SAP offers as separate products which have not been licensed
by Licensee.
7.3. Other Services. All other services not referred to in this Section 7 shall
be agreed upon separately and shall be subject to additional charges, including
without limitation, the installation of new Releases and Versions, the
incorporation of Modifications or Extensions into new Releases or Versions and
related Documentation, and the adaptation of any authorized Modifications or
Extensions developed by or for Licensee to new Releases or Versions.
7.4. Payment of Maintenance Fees. Unless otherwise specified in Appendix 1
hereto, Maintenance Fees shall be paid annually in advance in an amount
calculated as the then current percentage factor multiplied by the net License
fees for the Software licensed hereunder.
7.5. Termination of Maintenance Services. Maintenance Services may be terminated
by Licensee in writing at any time upon three months prior written notice.
Maintenance Services may be terminated by SAP upon three months prior written
notice to Licensee in the event SAP does not make such services generally
available in Korea. In the event of such termination by SAP, SAP shall refund
the Maintenance Fees to Licensee on a pro-rata basis.
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8. PERFORMANCE WARRANTY.
8.1. Warranty Period; Warranty. SAP warrants that the Software will
substantially conform to the functional specifications contained in the
Documentation for six months following Delivery (the "Warranty") and will
perform, when in Use without material alteration on the Designated Unit (s), in
accordance with the Functional specifications set forth in the Documentation.
SAP's warranty is subject to Licensee providing SAP and SAP AG necessary access,
including remote access, to the Software.
8.2. Licensee's Defect Reports. Licensee must specifically identify to SAP the
nature of the perceived Software defect which causes the Software not to conform
substantially to the functional specifications and must specifically describe
the conditions under which the perceived defect occurs. On SAP's request
Licensee shall deliver such information in written form. Licensee shall provide
SAP with sufficient test time and support on Licensees Designated Unit(s) to
duplicate the defect to verify that the defect is with the Software, and to
confirm that the defect has been corrected.
8.3. SAP's Obligation to Correct or Replace Defects. Should any component of the
Software fail to conform substantially to the functional s tons therefor during
the Warranty Period, SAP's sole obligation shall be, at SAP's option, to correct
the defect by bringing the performance of the Software into substantial
compliance with the functional specifications or to replace the defective
component SAP shall not be required to refund any payments made by Licensee with
respect to any component of the Software that is found to be defective. When
Productive Use of the Software is significantly restricted by a reported defect
and Licensee expressly so states in written form, SAP shall use its best efforts
to commence work on correcting the defect no later than the first working day
after receipt of the written notice, subject in each case to the provisions of
this Section 8.
8.4. Correction of Defects. SAP will deliver a correction of the defect in
writing and, if appropriate, in machine-readable form. Any installation shall be
the responsibility of Licensee unless otherwise agreed to in writing by the
parties. If, at Licensee's request SAP corrects a defect of any unsupported
Version or Release, SAP may request and Licensee shall pay, additional charges.
8.5. Scope of Warranty.
(a) The warranty set forth in this Section 8 shall not apply. (i) if the
Software is not used in accordance with the Documentation; or (ii) to any
Extensions or Modifications; or (iii) if the defect is caused by a Modification
or Extension; or (iv) if the Software is not installed on a Designated Unit or
(v) to the extent that the defect is caused by or is contributed to by Licensee;
or (vi) Licensee does not provide access, including remote access, to the
Software as required under Section 8.1; or (vii) if the defect is caused by a
Third-Party Database malfunction or any other software malfunction than the
Software licensed herein.
(b) SAP does not warrant that the Software will operate uninterrupted or
that it will be free from minor defects or errors which do not materially affect
such performance or that the
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applications contained in the Software are designed to meet all of Licensee's or
its authorized Affiliate business requirements.
(c) The Software, the Third Party Database and any other third party
software, are not specifically developed or Licensed hereunder for Use in any
direct and active operations in any nuclear, aviation, mass transit or medical
applications, or in any other inherently dangerous applications. The parties
hereto agree that Use of the Software, the Third Party Database and any other
third party software solely for financial application purposes or other
administrative purposes shall not be deemed inherently dangerous applications.
SAP, SAP AG and its licensors shall not be liable for any claims or damages
arising from inherently dangerous Use of the Software, the Third Party Database
or any other third party software licensed hereunder or used by Licensee in
connection herewith.
8.6. Express Disclaimer. SAP DISCLAIMS ALL OTHER WARRANTIES EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, ANY STATUTORY WARRANTIES (SUCH AS THOSE PROVIDED
IN THE KOREAN CIVIL CODE AND COMMERCIAL CODE) OR ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE EXCEPT TO THE EXTENT THAT
ANY WARRANTIES IMPLIED BY LAW CANNOT BE VALIDLY WAIVED.
9. LIMITATION OF LIABILITY.
9.1. Licensee's Remedies. Subject to the limited warranty set forth in Section
8, Licensee's sole and exclusive remedies for any damages or loss in any way
connected with the Software or services furnished by SAP, SAP AG and their
licensers, whether due to SAP's negligence or breach of any other duty, shall
be, by mutual agreement of Licensee and SAP, (i) replacement of the Software or
performance of services or (ii) return or credit of an appropriate portion of
any payment made or to be made by Licensee with respect to the applicable
portion of the software or services. The foregoing limitation of liability does
not apply to infringement of the property rights referred to in Section 10 or to
personal injury or death caused solely by the gross negligence or willful
misconduct of SAP.
9.2. SAP Not Responsible. SAP shall not be responsible for (i) the Modification
or Extension of the Software to fit the particular requirements of Licensee, or
(ii) the correction of any program errors resulting from Modifications or
Extensions or (iii) the correction of any program errors as a result of misuse
of the Software by Licensee. Under no condition will SAP be responsible under
this Agreement for preparation or conversion of data into the form required for
use with the Software.
9.3. Exclusion of Damages. ANYTHING TO THE CONTRARY HEREIN NOTWITHSTANDING UNDER
NO CIRCUMSTANCES SHALL SAP, SAP AG, THIRD PARTY DATABASE LICENSORS AND ANY OTHER
THIRD PARTY SOFTWARE LICENSORS BE LIABLE TO LICENSEE OR ANY OTHER PERSON OR
ENTITY FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL, OR INDIRECT DAMAGES, LOSS OF
GOODWILL OR BUSINESS PROFITS, WORK STOPPAGE, DATA LOSS, THIRD PARTY CLAIMS
(EXCEPT THIRD PARTY CLAIMS COVERED UNDER SECTION 10.3),
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COMPUTER FAILURE OR MALFUNCTION, ANY AND ALL OTHER COMMERCIAL DAMAGES OR LOSS,
OR EXEMPLARY OR PUNITIVE DAMAGES.
10. INDEMNIFICATION.
10.1. SAP Representation. SAP represents that SAP AG and its licensers own the
Proprietary Information licensed by SAP hereunder, including all intellectual
property rights therein, and that SAP has all rights from SAP AG and its
licensers necessary to license, in accordance with the terms of this Agreement
such Proprietary Information to Licensee.
10.2. No Representation Regarding Combination Use. SAP makes no representation
with respect to the possibility of infringement by Combination Use of the
Software. The parties agree that SAP has no duty to investigate nor to warn
Licensee of any such possibility. As used herein, "Combination Use" means Use of
the Software in combination or conjunction with any of the following unless such
Use is prescribed in the Documentation: (i) any software (including any Licensee
Extension or Licensee Modification) other than the Software; (ii) any computer
other than a Designated Unit and for (iii) any other software or hardware not
described in the Documentation or otherwise authorized by SAP.
10.3. Indemnification of Licensee.
(a) Subject to Section 10.2, SAP shall indemnify Licensee against all
claims, liabilities and costs, including attorneys! fees, up to the maximum
amount described in Section 10.3(b), incurred in the defense of any claim
brought against Licensee in Korea by third parties alleging that Licensee's Use
of the Software and the Documentation infringes or misappropriates: (i) any
Korean patent of which SAP is aware, or (ii) a Korean copyright or (iii) Korean
trade secret rights; provided that Licensee promptly notifies SAP in writing of
any such claim and SAP is permitted to control fully the defense and any
settlement of such claim. Licensee shall cooperate fully in the defense of such
claim and may appear, at its own expense through counsel reasonably acceptable
to SAP. SAP may, in its sole discretion, substitute for the Software and the
Documentation alternative substantially equivalent non-infringing programs and
supporting documentation.
(b) The maximum aggregate liability of SAP under the indemnity provided
in Section 10.3(a) above shall be a sum equal to the aggregate payments actually
made by Licensee to SAP under this Agreement at the time the claim of
infringement arises, and if there should be more than one claim of infringement
the amount payable under such indemnity in respect of each claim shall be
divided pro rata.
10.4. Indemnification of SAP and SAP AG. Licensee shall indemnify SAP, SAP AG
and their Third Party Database licensers against all claims, liabilities and
costs, including reasonable attorneys, fees, reasonably incurred in the defense
of any claim (other than for the infringement of intellectual property rights
specified in Section 10.3 above), arising out of Licensee's unlicensed or
unauthorized Use of the Software, the Documentation, the Third Party Database
and other SAP Proprietary Information licensed under this Agreement provided
that SAP
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promptly notifies Licensee in writing of such claim and that Licensee is
permitted to control fully the defense and any settlement of the claim.
10.5. SAP's Right to Commence infringement Actions. SAP alone shall be
responsible for taking such actions which it determines are reasonably necessary
or desirable in its sole discretion in connection with any infringement or
alleged infringement by a third party of any portion of the Software, the
Documentation, the Third Party Database and other SAP Proprietary Information.
Licensee shall not undertake any action in response to any infringement or
alleged infringement of the Software, the Documentation, the Third Party
Database and other SAP Proprietary Information without the prior written consent
of SAP, which consent shall not be unreasonably withheld. Licensee agrees to
cooperate with and assist SAP in taking whatever action which SAP determines to
be reasonably necessary or desirable in Connection therewith. SAP agrees to
reimburse Licensee for reasonable legal fees and other expenses incurred in
connection with such cooperation and assistance.
10.6. SAP's Duty to Indemnify Licensee. THE PROVISIONS OF THIS SECTION 10 STATE
THE SOLE, EXCLUSIVE AND ENTIRE LIABILITY OF SAP, SAP AG, AND THEIR LICENSORS TO
LICENSEE, AND LICENSEES SOLE REMEDY WITH RESPECT TO THE INFRINGEMENT OF THIRD
PARTY INTELLECTUAL PROPERTY RIGHTS.
11. DISPUTE RESOLUTION.
Any controversy or claim arising out of or relating to this Agreement or the
breach thereof, shall be submitted exclusively to the Seoul District Court for
adjudication. This Section 11 shall survive termination or expiration of this
Agreement.
12. ASSIGNMENT.
Licensee may not without SAP's prior written consent, assign, delegate,
sublicense, pledge, or otherwise transfer this Agreement or any of its tights or
obligations under this Agreement or the SAP Proprietary Information, to any
party, including any Affiliate. Any permitted assignment of this Agreement shall
provide that the provisions of this Agreement shall continue in full force and
that Licensee shall guarantee the performance of its assignee and shall remain
liable for all obligations hereunder. SAP may assign this Agreement to SAP AG.
13. GENERAL PROVISIONS.
13.1. Rights to Injunctive Relief. Both parties acknowledge that legal remedies
may be inadequate to provide SAP, SAP AG or Licensee with full compensation in
the event of Licensee's material breach of Sections 2, 6, or 13.6 or SAP's
material breach of Section 6 with respect to Licensee Proprietary Information,
and that the non-breaching party shall therefore be entitled to seek injunctive
relief in the event of any such material breach.
13.2. Entire Agreement. This Agreement and each Appendix hereto constitute the
complete and exclusive statement of the agreement between SAP and Licensee, and
all previous representations, discussions and writings are superseded by this
Agreement This Agreement may
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be modified only by a writing signed by both parties. This Agreement and each
Appendix hereto shall prevail over any additional, conflicting or inconsistent
terms and Conditions which may appear on any purchase order or other document
furnished by Licensee to SAP.
13.3. Severability. It is the intent of the parties that in case any one or more
of the provisions contained in this Agreement shall be held to be invalid or
unenforceable in any respect such invalidity or unenforceability shall not
affect the other provisions of this Agreement and this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein.
13.4. No Waiver. If either party should waive any breach of any provision of
this Agreement it shall not thereby be deemed to have waived any succeeding
breach of the same provision.
13.5. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be deemed an original and which shall together constitute one
Agreement.
13.6. Export Control Notice. Regardless of any disclosure made by Licensee to
SAP of an ultimate destination of the Software, the Documentation, the Third
Party Database, other SAP Proprietary Information or any part thereof, Licensee
shall comply with the export and regulations of Germany, Korea, the United
States and all other applicable export control laws and regulations of other
countries. Further, Licensee will not re-export or transfer, whether directly or
indirectly, the Software, the Documentation, the Third Party Database, other SAP
Proprietary Information or any system incorporating the Software or any part
thereof to anyone outside the Territory, or to anyone in the Territory in such
manner that constitutes an exportation under applicable laws or regulations,
without first obtaining all requisite approvals, and from governmental
authorities or agencies which have competence over or transfer of the Software,
the Documentation, the Third Party Database or other SAP Proprietary Information
and meeting any other applicable governmental requirements. Licensee shall be
responsible for complying with all applicable governmental regulations in the
Territory or any foreign countries with respect to the use of the Software, the
Documentation, the Third Party Database, other SAP Proprietary Information by
Licensee and by b authorized Affiliates outside of the Territory, including, but
not limited to import and export restrictions, obtaining any necessary consents
and licenses and registering or filing any documents. Licensee shall be solely
responsible for all costs with such compliance. Licensee shall defend, indemnify
and hold SAP, SAP AG and its licensers harmless from and against any and all
claims, Judgments, costs, awards, expenses (including reasonable attorneys'
fees) and liability of any kind arising out of the non-compliance with
applicable governmental regulations, statute, or other obligation with respect
to the use of the Software, the Documentation, the Third Party Database, other
SAP Proprietary Information outside the Territory by Licensee or its authorized
Affiliates. The provisions of this SubSection 13.6 shall survive the termination
or expiration of this Agreement
13.7. Publicity. Neither party shall use the name of the other in publicity,
advertising, or similar activity without the prior written consent of the other,
except that Licensee hereby consents to SAP's inclusion of Licensee's name in
customer listings which may be published as part of SAP's marketing efforts.
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13.8. Governing Law. This Agreement shall be governed by and construed under the
laws of Korea without reference to its conflict of law rules. This Section 13.8
shall survive termination or expiration of this Agreement
13.9. Notices. All notices or reports which are required or may be given
pursuant to this Agreement shall be in writing and shall be deemed duly given
when delivered to the respective executive offices of SAP and Licensee.
13.10. Force Majeure. Any delay or nonperformance of any provisions of this
Agreement (other than for the payment of amounts due hereunder) caused by
conditions beyond the reasonable control of the performing party shall not
constitute a breach of this Agreement, and the time for performance of such
provision, if any, shall be deemed to be extended for a period equal to the
duration of the conditions preventing performance.
13.11. Termination of the End-Use Agreement and the Letter. The End-User
Agreement and the Letter are hereby SAP and Licensee. Any of the provisions,
terms, and conditions of the Letter are Agreement which conflicts with any of
the provisions, terms, and conditions of the End-User Agreement and the Letter
shall supersede and modify such provisions, terms, and conditions thereto.
13.12. The R/3 Software End-User Value License Agreement between SAP America
Inc. and Hyundai Electronics America Incorporated(hereinafter referred to as
"HEA") executed in May 1997 (hereinafter referred to as "HEA Agreement"), and
the R/3 Software End-User Value License Agreement between SAP America Inc. and
Maxtor Corporation (hereinafter referred to as "Maxtor") executed in May 1997
(hereinafter referred to as "Maxtor Agreement"). shall be terminated and
superseded by this Agreement when the HEA Agreement and the Maxtor Agreement are
terminated by and SAP America Inc. and HEA, and SAP America Inc. and Maxtor. SAP
shall make its best efforts to make SAP America inc. reverse the HEA Agreement
and the Maxtor Agreement, and Licensee shall make its best efforts to make HEA
reverse the HEA Agreement and Maxtor reverse the Maxtor Agreement SAP agrees
that payments by Licensee shall be held until the HEA Agreement and the Maxtor
Agreement are reversed.
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IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have duly
executed this Agreement to become effective as of the date written below.
Effective Date: 30, June 1997
Hyundai Information Technology Co., Ltd. SAP Korea Ltd.
Hyundai Bldg. Annex 23rd Floor, SsangYong Tower
140-2, Kye-dong, Chongro-ku 23-2 Yoido-dong, Youngdeungpo-ku
Seoul, 110-793 Korea Seoul, 150-010 Korea
By:________________________________ By:________________________________
Name:______________________________ Name:______________________________
Title:_____________________________ Title:_____________________________
By:________________________________ By:________________________________
Name:______________________________ Name:______________________________
Title:_____________________________ Title:_____________________________
By:________________________________ By:________________________________
Name:______________________________ Name:______________________________
Title:_____________________________ Title:_____________________________
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Exhibit A
to
SAP KOREA
R/3 SOFTWARE END-USER VALUE LICENSE AGREEMENT ("Agreement")
- --------------------------------------------------------------------------------
List of Countries
Licensee agrees that each country where the licensed Software System shall be
installed and/or Used, shall be listed in this Exhibit A.
Pursuant to the Agreement the definition of Territory shall include the
following countries:
Argentina Australia
Austria Bangladesh
Belgium Brazil
Canada Chile
China CIS
Costa Rica Colombia
Czech Republic Croatia
Germany Egypt
Hong Kong France
India Guatemala
Italy Hungary
Japan Jordan
Korea Malaysia
Mexico Nigeria
Pakistan Panama
Philippines Poland
Portugal Romania
Singapore Saudi Arabia
South Africa Slovakia
Spain Sri Lanka
Sweden Taiwan
Thailand The Netherlands
The Union of Myanmar Turkey
United Arab Emirates United Kingdom
United States of America Vietnam
As far as available, SAP will deliver the country version. In all other cases,
SAP will deliver the standard English or German version.
Each additional country (not mentioned above) which will be added to this
Exhibit A shall be mutually agreed and confirmed in writing between SAP and
Licensee.
-19-
<PAGE> 20
Exhibit B
to
SAP KOREA
R/3 SOFTWARE END-USER VALUE LICENSE AGREEMENT("Agreement")
- --------------------------------------------------------------------------------
List of Companies
Licensee agrees that each Affiliate which shall install and/or Use the licensed
Software System shall be listed in this Exhibit B.
Pursuant to the Agreement the definition of Affiliate shall include the
following companies:
Aluminum of Korea Ltd.
Hyundai Motor Company
Hyundai Aluminum Industry Co., Ltd.
Hyundai Construction Equipment Service Co., Ltd.
Hyundai Corporation
Hyundai Electronics Industries Co., Ltd.
Hyundai Elevator Co., Ltd.
Hyundai Engineering & Construction Co., Ltd.
Hyundai Engineering Co., Ltd.
Hyundai Heavy Industries Co., Ltd.
Hyundai Housing & Industrial Development Co., Ltd.
Hyundai Institute for Human Resource Development
Hyundai International Merchant Bank
Hyundai Marine & Fire Insurance Co., Ltd.
Hyundai Merchant Marine Co., Ltd.
Hyundai Mipo Dockyard Co., Ltd.
Hyundai Motor Service Co., Ltd.
Hyundai Oil Refinery Co., Ltd.
Hyundai Petrochemical Co., Ltd.
Hyundai Pipe Co., Ltd.
Hyundai Precision & Industry Co., Ltd.
Hyundai Research Institute
Hyundai Securities; Co., Ltd.
Hyundai Wood Industries Co., Ltd.
Inchon Iron & Steel Co., Ltd.
KEFICO Corporation
Keumkang Development Industrial Co., Ltd.
Koryeo Industrial Development Co., Ltd.
Each additional company (not mentioned above) which will be added to this
Exhibit B shall be mutually agreed and confirmed in writing between SAP and
Licensee.
-20-
<PAGE> 21
Appendix 1
to
R/3 Software End-User Value License. Agreement
("Agreement")
- --------------------------------------------------------------------------------
This Appendix 1 is hereby annexed to and made a part of the Agreement specified
above. In each instance in which the provisions of this Appendix 1 contradict or
are not consistent with the provisions of the Agreement, the provisions in this
Appendix 1 shall prevail and govern, and the contradicted or inconsistent
provisions of the Agreement shall be deemed amended accordingly.
1. Pursuant to the above mentioned Agreement Software and Third Party
Database licensed to Licensee consists of the Software as described
below:
Software Description
General Function Blocks:
<TABLE>
<CAPTION>
Number of
Number of Information Number of
Denote "X" Names Users Users R/C Users
if Licensed Licensed Licensed Licensed
----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
FI Financial/Asset X
Accounting
TR-CM Case Management X
IM Investment Management X
CO Controlling X
EC Enterprise Controlling X
PS Project System X
MM Materials Management X
PM Plant Maintenance X
SD Sales and Distribution X
PP Production Planning X
4,074 1,022 1,764
(Total) (Total) (Total)
</TABLE>
-21-
<PAGE> 22
Special Function Blocks:
<TABLE>
<CAPTION>
Number of DW Users
Denote "X" if Licensed Licensed
---------------------- --------
<S> <C> <C> <C>
DW ABAP/4 Development X 140
Workbench
</TABLE>
Basis System and Database:
<TABLE>
<CAPTION>
Number of
Basis/Workflow Users
Denote "X" if Licensed Licensed
---------------------- --------
<S> <C> <C> <C>
BC Basis/Workflow with X 1,720
-----
database interface
BC Basis/Workflow with _______
installation-related
Database
BC Basis/Workflow with _______
ADABAS D Database
BC Basis/Workflow with _______
Infromix Online for
SAP Database
BC Basis/Workflow with X 5,280
-----
Oracle 7 Runtime
Database
BC Oracle 7E-ASL X 140
Database surcharge ---
</TABLE>
Human Resource Management Function Blocks:
<TABLE>
<CAPTION>
Number of Master
Denote "X" if Licensed Records Licensed
---------------------- ----------------
<S> <C> <C> <C>
PA Personnel X 14,000
------
Administration and
Payroll
PD Personnel Planning X 14,000
and Development ------
</TABLE>
-22-
<PAGE> 23
Optional Packages:
<TABLE>
<CAPTION>
Quantities
Licensed
<S> <C> <C> <C> <C>
TR-TM Treasury _______ _______ Named User(s)
Management
BC/DW R/3 Data Model _______ _______ copies (one copy
in ADW Format per Designated
Unit)
PP-EC External _______ ________ copies (one copy
Communication per Designated
Unit)
Industry Solutions:
PP-PI Process Industry _______ _______ licenses (one
license per
Designated Unit)
</TABLE>
2. The total number of Users licensed to Use the Software and the Third
Party Database according to the respective rights set forth in the
Agreement is as follows:
<TABLE>
<CAPTION>
Double Byte Single Byte Total
<S> <C> <C> <C>
Named Users 3,066 1,008 4,074
Info Users 630 392 1,022
R/C Users 420 1,344 1,764
DW Users 84 56 140
Basis/Workflow 4,200 1,080 5,280
Users
Basis/Workflow 0 1,720 1,720
database
interfaces
PA Master Records 5,000 9,000 14,000
PD Master Records 5,000 9,000 14,000
</TABLE>
a. Subject to the written agreement of SAP, Licensee may exchange
three (3) Double Byte Named Users for four (4) Single Byte Named
Users. However, such exchanges shall be subject to additional
License Fees (for the Third Party Database) for the increase in
the number of Users.
-23-
<PAGE> 24
b. The Single Byte Named Users in this Agreement are priced for use
in North America/Asia Pacific. Subject to the written agreement
of SAP, Licensee may exchange two (2) Single Byte Named Users for
use in North America/Asia Pacific, for three (3) Single Byte
Named Users for use in Europe. However, such exchanges shall be
subject to additional License Fees (for the Third Party Database)
for the increase in the number of Users.
3. The License Fee, net of discounts, to license the Software and the Third
Party Database specified in Clause 1 above, for the number of Users
specified in Clause I and Clause 2 above, is WON 8,256,624,000 for
Double Byte Users and DEM 5,851,200 for Single Byte Users. In addition
to the provisions set forth in the main body of the Agreement the
following Use restrictions shall apply:
a. The total number of Users permitted to access and/or Use the
Software and the Third Party Database in accordance with the
provisions of the Agreement shall not exceed the total number of
Users as specified in Clause 1 and 2 above.
b. The total number of Master Records created by the applicable
Users, as related to the PA and PD Function Blocks shall not
exceed total number of Master Records as specified in Clause 1
and 2 above. All Users of PA and PD Function Blocks must be
licensed as Basis/Workflow Users.
c. The quantifies of the Optional Packages shall not exceed the
quantifies as specified in Clause 1 above.
d. The number of copies of the Software and the Third Party Database
to be licensed for Productive Use shall not exceed 50, and the
Software and the Third Party Database shall be installed on not
more than 50 Designated Units in the Territory.
e. SAP or SAP AG shall provide Maintenance Services to not more than
four(4) Designated Site(s) as set forth in Clause 7 and Licensee
must set up Customer Competence Centers as set forth in Clause 8
to support Licensee and/or Licensee Affiliates.
4. The Net License Fee as specified in Clause 3 above shall be licensed,
invoiced and paid as follows:
a. SAP shall invoice Licensee on 30 June 1997, the Licensee Fee of
WON 6,094,174,857 for 3,100 Double Byte Users.
<TABLE>
<CAPTION>
Double Byte License for License to Licensee Fee Invoice Date Payment Due
Users up to ____ use From (WON) Date
Users
<S> <C> <C> <C> <C> <C>
Phase I 600 30.06.1997 1,179,517,714 30.06.1997 31.07.1997
Phase II 400 30.06.1997 786,345,143 30.06.1997 31.12.1997
Phase III 500 30.06.1997 982,931,429 30.06.1997 30.06.1998
</TABLE>
-24-
<PAGE> 25
<TABLE>
<S> <C> <C> <C> <C> <C>
Phase IV 600 30.06.1997 1,179,517,714 30.06.1997 31.12.1998
Phase V 1,000 30.06.1997 1,965,862,857 30.06.1997 30.06.1999
</TABLE>
b. SAP shall invoice Licensee on 30 June 1997, the Licensee Fee of
DEM 5,224,287 (for 2,500 Single Byte Users) in WON at the then
prevailing exchange rate.
<TABLE>
<CAPTION>
Single Byte License for License to Licensee Invoice Date Payment
Users up to ____ use From Fee (DEM) Due Date
Users
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phase I 2,200 30.06.1997 4,597,373 30.06.1997 31.07.1997
Phase II 100 30.06.1997 208,971 30.06.1997 31.12.1997
Phase III - - - - -
Phase IV - - - - -
Phase V 200 30.06.1997 417,943 30.06.1997 30.06.1999
</TABLE>
c. For the remaining 1,400 Users, Licensee shall call-off Users, and
SAP shall invoice Licensee for the License Fees, according to the
mutually agreed call-off schedule as follows:
<TABLE>
<CAPTION>
Double Byte License for License to Licensee Fee Invoice Date Payment Due
Users up to ____ use From (WON) Date
Users
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stage I - - - - -
Stage II 100 31.12.1997 196,586,286 31.12.1997 31.01.1998
Stage III - - - - -
Stage IV 200 31.12.1998 393,172,571 31.12.1998 31.01.1999
Stage V 800 30.06.1999 1,572,690,286 30.06.1999 31.07.1999
</TABLE>
<TABLE>
<CAPTION>
Single Byte License for License to Licensee Invoice Date Payment
Users up to ____ use From Fee (DEM) Due Date
Users
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stage 1 - - - - -
Stage 11 - - - - -
Stage III 100 30.06.1998 208,971 30.06.1998 31.07.1998
Stage IV 100 31.12.1998 208,971 31.12.1998 31.01.1999
Stage V 100 30.06.1999 208,971 30.06.1999 31.07.1999
</TABLE>
SAP and Licensee agree that the call-off schedule shall be reviewed
regularly and any changes to the call-off schedule to reflect actual
usage(subject to a minimum of 50 actual users)can be made by prior
mutual written agreement.
Licensee confirms its intention to complete the call-off of Users by 30
June 1999 subject to the progress of R/3 projects within the Hyundai
Group of Companies.
-25-
<PAGE> 26
For the Licensee Fee stated in DEM in this Section C, SAP shall invoice
in WON at the then prevailing exchange rate.
5. In the event that additional Software or products or number of Users,
other than that specified in Clause 2, are licensed to Licensee, and/or
Use restrictions as specified in Clause 3 above change, Licensee agrees
within a reasonable period of time to provide written notice to SAP. SAP
may amend its discounts and shall adjust the invoicing for License Fees
and Maintenance Fees, unless otherwise stated in this Appendix 1,
according to SAP's then current pricing policies in effect Such License
Fees and Maintenance Fees shall be payable, within thirty (30) days from
invoice date.
6. For the Software to be installed at each specific Licensee and/or
Affiliate Designated Site within the Territory, both Licensee and SAP
agree to execute Appendices to this Agreement in a form similar to
Appendix 2 (as attached), prior to delivery to such Designated Site.
Licensee shall be responsible to ensure that Licensee Affiliates abide
by all the provisions of the Agreement.
7. Maintenance Services for the licensed Software are limited to the
following Designated Site(s), which shall be set up as Customer
Competence Centers:
a. Company: Hyundai Information Technology Co., Ltd.
Address: Hyundai Bldg. Annex 140-2, Kye-dong, Chongro-ku,
Seoul, 110-793 Korea
b. To be advised by Licensee by third quarter 1997(North America).
c. To be advised by Licensee by third quarter 1997(North America).
d. To be advised by Licensee by fourth quarter 1997(Europe).
Maintenance Services for the Software installed at the above specified
Designated Site(s), shall commence on 1 January 1998. Until such date
Maintenance Services shall be provided pursuant to Section 8,
Performance Warranty, of the Agreement.
Maintenance Fees shall be invoiced by SAP to Licensee annually in
advance at the beginning of each calendar year and payable to SAP within
thirty (30) days from invoice date at the following rates:
Year I (Jan. 1998 - Dec. 1998) 5% of License Fees on actual usage basis
Year 2 (Jan. 1999 - Dec. 1999) 10% of License Fees on actual usage basis
Year 3 (Jan. 2000 - Dec. 2000) 15% of License Fees on actual usage basis
Maintenance Fees after Year 3 shall be priced at SAP's then current
pricing in effect.
-26-
<PAGE> 27
SAP and Licensee shall mutually agree on the schedule of actual usage
prior to the commencement of each calendar year for the purpose of
calculating the Maintenance Fees.
In the event Maintenance Services have commenced and additional Users
are subsequently licensed by Licensee, the increased Maintenance Fees
caused by such additional Users shall be due from the beginning of the
execution of the additional license and payable net thirty (30) days
upon receipt of SAP invoice.
SAP America, Inc. and Hyundai Electronics America incorporated / Maxtor
will confirm the Software Maintenance Response Schedule in the same form
as the Schedule A to the SAP America, lnc. R/3 Software End-User License
Agreement with Hyundai Electronics America, Incorporated issued on 28
May 1997.
SAP and Licensee shall confirm the Software Maintenance Response
Schedule similar to the Schedule A in the SAP America, Inc. R/3 Software
End-user License Agreement.
8. Licensee agrees to set up Customer Competence Center which is the
initial contact point for Licensee for questions and problems relating
to SAP, the Software and the Use. Licensee agrees to provide the
Customer Competence Center with the following minimum functions.
a. Setup and operation of a First Level Service for Basis/Workflow
and applications during normal local working hours (at least 8
hours a day, 5 days a week).
b. Contract processing in conjunction with SAP (system auditing,
maintenance billing, release order processing, user master and
installation data management).
c. Internal promotion support for the organization and performance
of internal demos, information events, and marketing campaigns.
d. Coordination of development requests, i.e. collection and
discussion of requests from the group and representation of the
group's interests at SAP.
In the event that Licensee fails to provide the above minimum functions
within one year of the effective date of this Agreement, SAP shall be
entitled to charge the Software Maintenance Fees based on the then
current list prices of the Software.
9. Early Watch Service for the licensed Software which provides for remote
diagnostics and performance monitoring from SAP, is for six sessions per
year for each of the Designated Unit(s) at the Designated Site(s)
specified in the Appendix 2 to this Agreement. Early Watch Service is
mandatory for each Designated Unit on which the Software is used for
Productive Use.
Early Watch Service shall commence prior to the date when the Software
will begin to be used for Productive Use and such commencement date
shall be specified in the Early
-27-
<PAGE> 28
Watch Service Order Form to be provided by Licensee to SAP. Early Watch
Service Fees shall be invoiced by SAP annually in advance at the
beginning of each year and payable to SAP within thirty (30) days from
invoice date. Early Watch Service Fees for six sessions per year are as
follows:
WON 6,000,000 per year for each Designated Unit
The fees for six sessions for the initial year shall include one
additional free session which will be provided prior to such six
sessions. Such one free session shall be taken prior to the date when
the Software is used for Productive Use. The right of the Licensee for
the free session expires in the event Licensee does not take such
session prior to the Productive Use of the Software.
In the initial year, if the period is less than a calendar year, the
charge shall be on a pro rata basis for such period, and shall be
invoiced upon completion of the first session.
The above charge is not refundable even in the event that the number of
sessions is not performed. SAP is entitled to change the above specified
Early Watch Service Fees upon three month prior written notice to
Licensee.
10. In the event Licensee is functionality, Licensee is responsible to
license or purchase a required third party EDI translator/interpreter.
Such EDI translator/interpreter shall be licensed or provided directly
from a Third Party vendor to Licensee. SAP, SAP AG and their Third Party
Database licensers shall have no liability with respect to such EDI
translator/interpreter or any interoperability or other problems or
damages caused by the EDI translator/interpreter when used with the
Software System.
11. In the event that Optional Packages are licensed by Licensee herein, all
such Optional Package Software (excluding TR-TM Treasury Management)
must be licensed at a minimum quantity of one (1) copy per Designated
Unit The number of copies of Optional Packages, as well as the number of
ABAP/4 Development Workbench Named Users licensed by Licensee are
specified in Clause 1 above.
12. In the event PP-PI Process Industry functionality is licensed by
Licensee, the parties acknowledge and agree the functions performed by
PP-PI Software are dependent on accurate and complete input elements and
instructions, and on the continued monitoring of the subject process.
Licensee acknowledges that it is Licensees sole obligation to ensure the
accuracy and completeness of all data processed by the PP-PI Software.
PP-PI functionality, is not licensed hereunder for Use in the operation
of nuclear or other power generation, aviation or mass transit
applications. SAP, SAP AG, its affiliated group companies, and its and
their licensers shall not be liable for any claims or damages arising
from inherently dangerous or negligent Use of the PP-PI Software and/or
third party software licensed hereunder.
13. Each Productive Use copy and Non-Productive Use copy of the Software
licensed herein requires a license keycode. For each installation of the
Software, five (5) keycodes shall
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<PAGE> 29
be provided; one (1) keycode for Productive Use of the Software and four
(4) keycodes for Non-Productive Use of the Software. The license
keycodes will be issued by SAP AG within four (4) weeks from the date of
installation of the Software on each Designated Unit. The required form
to receive the license keycode from SAP AG must be executed by Licensee
and taxed to SAP AG within the four (4) week period following
installation of the Software. The applicable form and fax number will be
included in each installation kit provided to Licensee upon delivery of
the Software. Licensees that subsequently change Designated Units for
Use of the licensed Software must be re-issued license keycodes for each
respective copy of the licensed Software. Failure of Licensee to obtain
necessary license keycodes for the licensed Software within four (4)
weeks of installation of such Software will cause the Software to have
limited User access until the time that the license keycodes are issued.
-29-
<PAGE> 30
Appendix 1.1
to
R13 Software End-User Value License Agreement
("Agreement")
- --------------------------------------------------------------------------------
This Appendix 1.1 is hereby annexed to and made a part of the Agreement
specified above. In each instance in which the provisions of this Appendix 1.1
contradict or are not consistent with the provisions of the Agreement the
provisions in this Appendix 1.1 shall prevail and govern, and the contradicted
or inconsistent provisions of the Agreement shall be deemed amended accordingly.
1. Pursuant to the above mentioned Agreement Software and Third Party
Database licensed to Licensee consists of the Software as described
below:
Software Description
General Function Blocks:
<TABLE>
<CAPTION>
Number of Number of
Denote "X" if Named Users Information Number of R/C
Licensed Licensed Users Licensed Users Licensed
-------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
F1 Financial/Asset Accounting x
TR-CM Cash Management x
IM Investment Management x
CO Controlling x
EC Enterprise Controlling x
PS Project System x
MM Materials Management x
PM Plant Maintenance x
SD Sales and Distribution x
PP Production Planning x 186 53 -----------
(Total) (Total) (Total)
</TABLE>
Special Function Blocks:
<TABLE>
<CAPTION>
Number of DW Users
Denote "X" if Licensed Licensed
---------------------- ------------------
<S> <C> <C> <C>
DW ABAP/4 Development x 12
Workbench
</TABLE>
-30-
<PAGE> 31
Basis System and Database:
<TABLE>
<CAPTION>
Number of
Denote "X" Basis/Workflow
if Licensed Users Licensed
----------- --------------
<S> <C> <C> <C>
BC Basis/Workflow with
database interface ______
BC Basis/Workflow with
installation-related
Database ______
BC Basis/Workflow with
ADABAS D Database ______
BC Basis/Workflow with
Informix Online for
SAP Database ______
BC Basis/Workflow with
Oracle 7 Runtime
Database x 251
BC Oracle 7E-ASL
Database surcharge x 12
</TABLE>
Human Resource Management Function Blocks:
<TABLE>
<CAPTION>
Denote "X" Number of Master
if Licensed Records Licensed
----------- ----------------
<S> <C> <C> <C>
PA Personnel x 1,000
Administration and
Payroll
PD Personnel Planning x 1,000
and Development
</TABLE>
Optional Packages:
<TABLE>
<CAPTION>
Denote "X"
if Licensed Quantities Licensed
----------- -------------------
<S> <C> <C> <C> <C>
TR-TM Treasury Management ____ ____ Named User(s)
BC/DW R/3 Data Model in ADW ____ ____ copies (one copy per Designated
Format Unit)
PP-EC External Communication ____ ____ copies (one copy per Designated
Unit)
Industry Solutions:
PP-PI Process Industry x x licenses (one license per
Designated Unit)
</TABLE>
-31-
<PAGE> 32
2. The total number of Users licensed to Use the Software and the Third
Party Database according to the respective rights set forth in the
Agreement is as follows:
<TABLE>
<CAPTION>
Single Byte
<S> <C>
Named Users 186
Info Users 53
DW Users 12
Basis/Workflow Users 251
PA Master Records 1,000
PD Master Records 1,000
</TABLE>
3. The License Fee, net of discounts, to license the Software and the Third
Party Database specified in Clause 1 above, for the number of Users
specified in Clause 1 and Clause 2 above, is WON 687,228,000. In
addition to the provisions set forth in the main body of the Agreement,
the following Use restrictions shall apply:
a. The total number of Users permitted to access and/or Use the
Software and the Third Party Database in accordance with the
provisions of the Agreement shall not exceed the total number of
Users as specified in Clause 1 and 2 above.
b. The total number of Master Records created by the applicable
Users, as related to the PA and PD Function Blocks shall not
exceed total number of Master Records as specified in Clause 1
and 2 above. All Users of PA and PD Function Blocks must be
licensed as Basis/Workflow Users.
c. The quantities of the Optional Packages shall not exceed the
quantities as specified in Clause 1 above.
d. The number of copies of the Software and the Third Party Database
to be licensed for Productive Use shall not exceed 10, and the
Software and the Third Party Database shall be installed on not
more than 10 Designated Units in the Territory.
e. SAP or SAP AG shall provide Maintenance Services to not more than
four (4) Designated Site(s) as set forth in Clause 9 and Licensee
must set up Customer Competence Centers as set forth in Clause 10
to support Licensee and/or Licensee Affiliates.
4. The Net License Fee of WON 687,228,000 as specified in Clause 3 above
has already been invoiced to Licensee in 1996 under the End-User
Agreement, and out of this License Fee, WON 413,432,000 has already been
paid and the balance WON 273,796,000 shall be paid to SAP by 31 July
1997.
5. In consideration of the volume of Users committed by Licensee in
Appendix I of this Agreement SAP shall grant Licensee a credit note of
WON 301,749,244 on 31 July 1997.
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<PAGE> 33
6. Licensee has already called off Users in accordance with the End-User
Agreement as follows;
a. Company: Hyundai Semiconductor America Inc.
Address: 171 0 Willow Creek Circle, #12 Eugene, OR 97402,
USA
75 Named Users
24 Info Users
2 D/W Users
101 BC Users with Oracle 7 Runtime Database
2 Oracle 7E-ASL license surcharge
1,000 PA Master Records
1,000 PD Master Records
b. Company: Hyundai Electronics Industries Co. Ltd.,
Memory Business Division
Address: 140-21 Kye-dong, Chongro-ku, Seoul,. 110-793 Korea
40 Named Users
5 Info Users
5 D/W Users
50 BC Users with Oracle 7 Runtime Database
5 Oracle 7E-ASL license surcharge
c. Company: Hyundai Precision America Inc.
Address: 8880 Rio San Diego Dr., Suite 600, San Diego,
CA 92108, USA
71 Named Users
24 Info Users
5 D/W Users
100 BC Users with Oracle 7 Runtime Database
5 Oracle 7E-ASL license surcharge
7. In the event that additional Software or products or number of Users,
other than that specified in Clause 2, are licensed to Licensee, and/or
Use restrictions as specified in Clause 3 above change, Licensee agrees
within a reasonable period of time to provide written notice to SAP. SAP
may amend its discounts and shall adjust the invoicing for License Fees
and Maintenance Fees, unless otherwise stated in this Appendix 1.1,
according to SAP's then current pricing policies in effect Such License
Fees and Maintenance Fees shall be payable, within thirty (30) days from
invoice date.
8. For the Software to be installed at each specific Licensee and/or
Affiliate Designated Site within the Territory, both Licensee and SAP
agree to execute Appendices to this Agreement in a form similar to
Appendix 2 (as attached), prior to delivery to such
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<PAGE> 34
Designated Site. Licensee shall be responsible to ensure that Licensee
Affiliates abide by all the provisions of the Agreement.
9. Maintenance Services for the licensed Software are limited to the
following Designated Site(s), which shall be set up as Customer
Competence Centers:
a. Company: Hyundai Information Technology Co., Ltd.
Address: Hyundai Bldg. Annex 140-2, Kye-dong, Chongro-ku,
Seoul, 110-793 Korea
b. To be advised by Licensee by third quarter 1997(North America).
c. To be advised by Licensee by third quarter 1997(North America).
d. To be advised by Licensee by fourth quarter 1997(Europe).
Maintenance Services for the Software installed at the above specified
Designated Site(s), have already commenced on 1 January 1997.
Maintenance Fees shall be invoiced by SAP to Licensee annually in
advance at the beginning of each calendar year and payable to SAP within
thirty (30) days from invoice date at the following rates:
Year 2 (Jan. 1998 - Dec. 1998) 10% of License Fees of WON 409,634,400
Year 3 (Jan. 1999 - Dec. 1999) 15% of License Fees of WON 409,634,400
Maintenance Fees after Year 3 shall be priced at SAP's then current
pricing in effect.
In the event Maintenance Services have commenced and additional Users
are subsequently licensed by Licensee, the increased Maintenance Fees
caused by such additional Users shall be due from the beginning of the
execution of the additional license and payable net thirty (30) days
upon receipt of SAP invoice.
10. Licensee agrees to set up Customer Competence Center which is the
initial contact point for Licensee for questions and problems relating
to SAP, the Software and the Use. Licensee agrees to provide the
Customer- Competence Center with the following minimum functions.
a. Setup and operation of a First Level Service for Basis/Workflow
and applications during normal local working hours (at least 8
hours a day, 5 days a week).
b. Contract processing in conjunction with SAP (system auditing,
maintenance billing, release order processing, user master and
installation data management).
-34-
<PAGE> 35
c. Internal promotion support for the organization and performance
of internal demos, information events, and marketing campaigns.
d. Coordination of development requests, i.e. collection and
discussion of requests from the group and representation of the
group's interests at SAP.
In the event that Licensee fails to provide the above minimum functions
within one year of the effective date of this Agreement, SAP shall be
entitled to charge the Software Maintenance Fees based on the then
current list prices of the Software.
11. Early Watch Service for the licensed Software which provides for remote
diagnostics and performance monitoring from SAP, is for six sessions per
year for each of the Designated Unit(s) at the Designated Site(s)
specified in the Appendix 2 to this Agreement Early Watch Service is
mandatory for each Designated Unit on which the Software is used for
Productive Use.
Early Watch Service shall commence prior to the date when the Software
will begin to be used for Productive Use and such commencement date
shall be specified in the Early Watch Service Order Form to be provided
by Licensee to SAP. Early Watch Service Fees shall be invoiced by SAP
annually in advance at the beginning of each year and payable to SAP
within thirty (30) days from invoice date. Early Watch Service Fees for
six sessions per year are as follows:
WON 6,000,000 per year for each Designated Unit
The fees for six sessions for the initial year shall include one
additional free session which will be provided prior to such six
sessions. Such one free session shall be taken prior to the date when
the Software is used for Productive Use. The right of the Licensee for
the free session expires in the event Licensee does not take such
session prior to the Productive Use of the Software.
In the initial year, d the period is less than a calendar year, the
charge shall be on a pro rata basis for such period, and shall be
invoiced upon completion of the first session.
The above charge is not refundable even in the event that the number of
sessions is not performed. SAP is entitled to change the above specified
Early Watch Service Fees upon three month. prior written notice to
Licensee.
12. In the event Licensee is utilizing EDI functionality, Licensee is
responsible to license or purchase a required third party EDI
transistor/interpreter. Such EDI transistor/interpreter shall be
licensed or provided directly from a Third Party vendor to Licensee.
SAP, SAP AG and their Third Party Database licensers shall have no
liability with respect to such EDI translator/interpreter or any
interoperability or other problems or damages caused by the EDI
translator/interpreter when used with the Software System.
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<PAGE> 36
13. In the event that Optional Packages are licensed by Licensee herein, all
such Optional Package Software (excluding TR-TM Treasury Management)
must be licensed at a minimum quantity of one (1) copy per Designated
Unit. The number of copies of Optional Packages, as well as the number
of ABAP/4 Development Workbench Named Users licensed by Licensee are
specified in Clause 1 above.
14. In the event PP-PI Process Industry functionality is licensed by
Licensee, the parties acknowledge and agree the functions performed by
PP-PI Software are dependent on accurate and complete input elements and
instructions, and on the continued monitoring of the subject process.
Licensee acknowledges that it is Licensee's sole obligation to ensure
the accuracy and completeness of all data processed by the PP-PI
Software. PP-PI functionality, is not licensed hereunder for Use in the
operation of nuclear or other power generation, aviation or mass transit
applications. SAP, SAP AG, its affiliated group companies, and its and
their licensers shall not be liable for any claims or damages arising
from inherently dangerous or negligent Use of the PP-PI Software and/or
third party software licensed hereunder.
15. Each Productive Use copy and Non-Productive Use copy of the Software
licensed herein requires a license keycode. For each installation of the
Software, five (5) keycodes shall be provided; one (1) keycode for
Productive Use of the Software and four (4) keycodes for Non-Productive
Use of the Software. The license keycodes will be issued by SAP AG
within four (4) weeks from the date of installation of the Software on
each Designated Unit. The required form to receive the license keycode
from SAP AG must be executed by Licensee and faxed to SAP AG within the
four (4) week period following installation of the Software. The
applicable form and fax number will be included in each installation kit
provided to Licensee upon delivery of the Software. Licensees that
subsequently change Designated Units for Use of the licensed Software
must be re-issued license keycodes for each respective copy of the
licensed Software. Failure of Licensee to obtain necessary license
keycodes for the licensed Software within four (4) weeks of installation
of such Software will cause the Software to have limited User access
until the time that the license keycodes are issued.
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<PAGE> 37
APPENDIX 2
TO
SAP KOREA
R13 SOFTWARE END-USER VALUE LICENSE AGREEMENT
("AGREEMENT")
BETWEEN
SAP KOREA LTD. ("SAP")
AND
HYUNDAI INFORMATION TECHNOLOGY ("LICENSEE")
EFFECTIVE DATE OF THIS APPENDIX:_______________________
This Appendix is hereby annexed to and made a part of the Agreement specified
above. Designated Unit(s) to be identified by Licensee to SAP in writing is/are
as follows:
Type/Model No.:________________________
Serial No.: ________________________
Designated Site to be identified by Licensee to SAP in writing is/are as
follows:
Company Name: ________________________ ("Licensee Affiliate")
Address: ________________________
________________________
1. Pursuant to the above mentioned Agreement Software and Third Party
Database licensed to Licensee consists of the Software as described
below, which is to be installed on the above specified Designated
Unit(s) at the above specified Designated Site:
Software Description
General Function Blocks:
<TABLE>
<CAPTION>
Number of Number of
Named Information Number of
Denote "X" Users Users R/C Users
if Licensed Licensed Licensed Licensed
----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
FI Financial/Asset _____
Accounting
TR-CM Cash Management _____
IM Investment Management _____
CO Controlling _____
EC Enterprise Controlling _____
PS Project System _____
MM Materials Management _____
PM Plant Maintenance _____
SD Sales and Distribution _____
</TABLE>
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<PAGE> 38
<TABLE>
<S> <C> <C> <C> <C> <C>
PP Production Planning _____
------- ------ -------
(Total) (Total) (Total)
</TABLE>
Special Function Blocks:
<TABLE>
<CAPTION>
Number of
DW Users
Licensed
<S> <C> <C> <C>
DW ABAP/4 Development _____ _____
Workbench
</TABLE>
Basis System and Database:
<TABLE>
<CAPTION>
Number of
Basis/Workflow
Users
Licensed
--------------
<S> <C> <C> <C>
BC Basis/Workflow with _____ _____
database interface
BC Basis/Workflow with _____ _____
installation-related
Database
BC Basis/Workflow with _____ _____
ADABAS D Database
BC Basis/Workflow with _____ _____
Informix Online for SAP
Database
BC Basis/Workflow with _____ _____
Oracle 7 Runtime
Database
BC Oracle 7E-ASL Database _____ _____
surcharge
</TABLE>
Human Resource Management Function Blocks:
<TABLE>
<CAPTION>
Number of
Master
Records
Licensed
--------
<S> <C> <C> <C>
PA Personnel _____ _____
Administration and
Payroll
PD Personnel Planning and _____ _____
Development
</TABLE>
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<PAGE> 39
Optional Packages:
<TABLE>
<CAPTION>
Quantities
Licensed
--------
<S> <C> <C> <C> <C>
TR-TM Treasury Management _____ _____ Named User(s)
BC/DW R/3 Data Model in ADW _____ _____ copies (one copy per
Format Designated Unit)
PP-EC External Communication _____ _____ copies (one copy per
Designated Unit)
Industry Solutions:
PP-PI Process Industry _____ _____ licenses (one license
per Designated Unit)
</TABLE>
2. The total number of Users licensed to Use the Software according to the
respective rights set forth in the Agreement at the above specified
Designated Unit(s) at the above specified Designated Site is as follows:
<TABLE>
<CAPTION>
Double Byte Single Byte Total
<S> <C> <C> <C>
Named Users _____ _____ _____
Info Users _____ _____ _____
R/C Users _____ _____ _____
DW Users _____ _____ _____
Basis/Workflow Users _____ _____ _____
Basis/Workflow database interfaces _____ _____ _____
PA Master Records _____ _____ _____
PD Master Records _____ _____ _____
</TABLE>
3. Delivery of the above specified Software, the Documentation and the
Third Party Database licensed herein to the above specified Designated
Site, in the _________ language, shall be in the month of ____/____.
Delivery of one set of Software, the Documentation and the Third Party
Database licensed herein to such Designated Site shall be initiated upon
execution of this Appendix 2 by the parties herein. Additional
Documentation for the above specified Designated Site may be ordered by
Licensee at SAP's then current prices in effect
(NOTE: USE THIS CLAUSE WHEN THE LICENSEE IS LICENSING THE THIRD PARTY DATABASE
DIRECTLY FROM SOFTWARE AG, INFORMIX OR ORACLE).
4. Software licensed herein currently requires a Third Party Database which
Licensee is licensing directly from the Third Party Database licensor.
The invoice number and invoice date for such license from the Third
Party Database licensor is as follows:
Third Party Database Licenser:____________________
Invoice Number: ____________________
Invoice Date: ____________________
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<PAGE> 40
SAP makes no representations or Warranties as to the terms of any
license or the operation of any Third Party Database obtained directly
from a Third Party Database licenser. Licensee is responsible to arrange
the necessary support and maintenance of the licensed Third Party
Database directly from a Third Party Database licenser.
(NOTE. USE THIS CLAUSE WHEN THE LICENSEE IS LICENSING THE ORACLE 7 DIRECTLY FROM
SAP).
4. Software licensed herein currently requires a Third Party Database which
has been licensed herein as the Oracle 7 Runtime Database. Such runtime
database shall be limited to use by Licensee for the purpose of running
the Software for Productive and Non-Productive Use of the Software.
All Users who utilize SAP tools (in particular the ABAP/4 Development
Workbench) to modify and/or extend the Software including writing
in-house developments, and all Users who access Modifications,
Extensions or in-house developments for Productive Use, are subject to
an Oracle 7E-ASL surcharge.
In the event Licensee uses the licensed Third Party Database other than
as specified above, a Full License including programming tools provided
through such Third Party Database licenser, can be licensed directly
from the Third Party Database licenser.
Hyundai Information Technology Co., Ltd. SAP Korea Ltd.
("Licensee") ("SAP")
________________________________________ ____________________________
Name: Name:
Title: Title:
Licensee Affiliate agrees to abide by all the previsions of the above specified
Agreement and agrees that SAP may directly enforce all such previsions against
Licensee Affiliate as if it had executed the Agreement with SAP. In the event
the Agreement is terminated for any reason, or if Licensee Affiliate ceases to
be an Affiliate of Licensee, Licensee Affiliate agrees that all of its rights to
access the Software will cease immediately.
________________________________________
("Licensee Affiliate")
________________________________________
Name:
Title:
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<PAGE> 41
ADDENDUM
TO
APPENDIX 2A
TO
SAP KOREA
R13 SOFTWARE END-USER VALUE LICENSE AGREEMENT("AGREEMENT")
WITH
HYUNDAI INFORMATION TECHNOLOGY CO, LTD.
EFFECTIVE 30 JUNE 1997
ISSUED 3 NOVEMBER 1997
1. Section 6.4 Paragraph (b)
A new sentence shall be included to this Paragraph as follows; "If
Licensee independently develops software that in no way uses any of
SAP's Proprietary Information or otherwise breaches its obligations
hereunder in the course of such independent development, then Licensee's
obligation of giving SAP the right of first refusal as described herein
shall not apply and the limitations described in the second sentence of
Paragraph 2 of this Section 6.4(b) shall also not apply."
2. Section 10.3 Paragraph (a) The whole Paragraph shall be read as follows;
"(a) Subject to Section 10.2. SAP shall indemnity Licensee against all
claims, liabilities and costs, including attorneys' fees, up to the
maximum amount described in Section 10.3(b), incurred in the defense of
any claim brought against Licensee in the Territory by third parties
alleging that Licensee's Use of the Software and the Documentation
infringes or misappropriates (i) any Korean, United States or German
patent of which SAP is aware, or (ii) a Korean, United States or German
copyright or (iii) trade secret rights; provided that Licensee promptly
notifies SAP in writing of any such claim and SAP is permitted to
control fully the defense and any settlement of such claim. Licensee
shall cooperate fully in the defense of such claim and may appear, at
its own expense through counsel reasonably acceptable to SAP. SAP may,
in its sole discretion, substitute for the Software and the
Documentation alternative substantially equivalent non-infringing
programs and supporting documentation."
3. Section 12
A new paragraph shall be included to this Section as follows;
"Should Licensee, from time to time, sell or otherwise transfer the
assets or equity ownership of any Licensee division, Affiliate, or
business unit (all jointly hereafter referred to as "Business Unit"),
and as part of such transfer Licensee agrees to provide transitional
services to the Business Unit in connection with the transfer of such
Business Unit including the use of Software by Licensee for such
Business Unit then Licensee shall have the right to do so for a period
of six (6) months after the completion of any such transfer with no
additional payment to SAP. If Licensee, as part of any agreement
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<PAGE> 42
with such Business Unit is required to provide such services for a
period beyond six(6) month period subject to a mutually agreed upon
payment to SAP. Upon Licensee no longer providing services to such
Business Unit pursuant to this provision, SAP agrees that SAP will offer
to license the Software to such Business Unit on SAP's then current
prices and terms and conditions in effect."
4. Section 13.13
This new Section shall be included to the Agreement as follows;
"13.13 Equal Opportunity. Licensee hereby incorporates by reference as
part of this Agreement applicable provisions of Executive Order 11246 of
U.S.A., regarding equal opportunity for all persons without regarding
color, religion, sex or national origin; the Vietnam Era Veterans
Readjustment Assistant Act of 1974 of U.S.A., as amended (the "Veteran
Act"), the Rehabilitation Act of 1973 of U.S.A.(the "Rehab Act"), and
the Small Business Act of 1958 of U.S.A. (the "Small Business Act").
Pursuant to Executive Order 11246 and particularly 41 C.F.R. 60-12, and
by acceptance of this Agreement SAP certifies that it complies with the
provisions of Executive Order 11246, the Veterans Act, the Rehab Act and
the Small Business Act and SAP does not and will not maintain any
facilities in a segregated manner or permit SAP's employees to perform
their services at any locale under SAP's control, where segregated
facilities are maintained. Further, SAP agrees that SAP will obtain a
certificate containing similar statements prior to the award of any
nonexempt subcontract."
5. Section 13.14
This new Section shall be included to the Agreement as follows; "13.14
Year 2000 Representation Language. SAP represents that its R/3 standard
Software (excluding all third party products) has been or will be
programmed to properly process and present dates beyond December 31,
1999."
Hyundai Information Technology Co., Ltd. SAP Korea Ltd.
("Licensee") ("SAP")
________________________________________ ___________________________________
Name: Name: Mr. Hae Won Choi
Title: Title: Representative Director &
President
- --------------------------------------------------------------------------------
Hyundai Information Technology USA Inc. Maxtor Corporation
("Licensee Affiliate")
________________________________________ ___________________________________
Name: Name:
Title: Title:
-42-
<PAGE> 43
1) Maxtor (1,720 Users): Single Byte
<TABLE>
<CAPTION>
Surcharge
Type No. of Users Unit Price for Location Amount (OEM)
- ---- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
GENERAL FUNCTION BLOCKS
- - Operational User 500 4,000 1.5 3,000,000
- - DW User 20 7,500 1.5 225,000
- - Information User 200 2,000 1.5 600,000
- - R/C User 1,000 1,500 1.5 2,250,000
Subtotal 1,720 6,075,000
BASIS
- - Workflow Interface 1,720 650 1.5 1,677,000
Subtotal 1,720 650 1,677,000
HR FUNCTION BLOCKS
HR-PA records 5,000 60,000 1.5 390,000
HR-PD records 5,000 30,000 1.5 225,000
Subtotal 10,000 90,000 615,000
</TABLE>
TOTAL: $2,218,650.00
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<PAGE> 44
LICENSE TERMINATION AGREEMENT
This License Termination Agreement ("Agreement"), effective November ___, 1997
("Effective Date") is made by and between Maxtor Corporation, a Delaware
corporation, having principal places of business at 510 Cottonwood Drive,
Milpitas, California 95135 U.S.A. and 2190 Miller Drive, Longmont, Colorado
80501 U.S.A. ("Maxtor"), and SAP America, Inc., a Delaware corporation, having a
principal place of business at International Court Three, 300 Stevens Drive,
Philadelphia, Pennsylvania, 19311 U.S.A. ("SAP").
PREAMBLE
WHEREAS, Maxtor acquired from SAP America Inc. a license to Use SAP's
proprietary R/3 Software ("Software") pursuant to the End-User Software
License Agreement effective May 30, 1997 between SAP and Maxtor
("End-User Agreement");
WHEREAS, an affiliate of Maxtor, Hyundai Information Technology Co., Ltd. (HIT)
and an affiliate of SAP AG, SAP Korea Ltd. ("SAP Korea") having entered
into that certain SAP Korea R/3 Software End-User Value License
Agreement ("Value Agreement") effective June 30, 1997; and
WHEREAS, by way of Appendix 2A and the Addendum to Appendix 2a to the Value
Agreement, HIT, SAP Korea, and Maxtor have agreed to make Maxtor an
additional Licensee under the Value Agreement;
NOW, THEREFORE, the parties agree as follows:
TERMS AND CONDITIONS
1. SAP and Maxtor agree that as of the Effective Date the End-User Agreement is
canceled and of no further force and effect and that such cancellation is
without cost, liability, or penalty to either party. SAP and Maxtor each release
each other of any and all claims arising from the End-User Agreement.
2. SAP agrees that Maxtor has no duty to return any and all Software received
under the End-User Agreement and Maxtor agrees that any and all such Software is
now licensed to Maxtor under the terms of the Value Agreement as if it had been
originally delivered thereunder.
3. SAP agrees that all of Maxtor's customer numbers and installation numbers
shall continue to be assigned to Maxtor and continue to be valid.
4. SAP agrees to make consulting services available to Maxtor under terms and
conditions to be agreed upon from time to time.
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<PAGE> 45
5. OSS access, First Level Support, and other supports will be provided by SAP
to Maxtor as specified in the Value Agreement, until such a time as it is
mutually agreed by Maxtor and SAP that equivalent support services can be
provided by HIT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
MAXTOR CORPORATION SAP AMERICA, INC.
By:________________________________ By:__________________________________
(signature) (signature)
___________________________________ _____________________________________
(print name) (print name)
___________________________________ _____________________________________
(title) (title)
HYUNDAI INFORMATION TECHNOLOGY, INC. SAP KOREA, INC.
By:________________________________ By:__________________________________
(signature) (signature)
___________________________________ _____________________________________
(print name) (print name)
___________________________________ _____________________________________
(title) (title)
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<PAGE> 1
EXHIBIT 10.55
SUBLICENSE AGREEMENT BETWEEN
HYUNDAI ELECTRONICS INDUSTRIES CO., LTD., AND
MAXTOR CORPORATION
This Sublicense Agreement, with an Effective Date of January 1, 1996, between
Hyundai Electronics Industries Co. Ltd. (HEI), a corporation of the Republic of
Korea, and Maxtor Corporation (Maxtor), a Delaware corporation, a subsidiary of
HEI.
Whereas:
HEI is licensed under certain patent rights owned by International
Business Machines Corporation (IBM) by an Agreement (the IBM
Agreement) effective January 1, 1996.
The IBM Agreement was amended through an Amendment (the IBM Amendment)
dated March ___, 1998, effective January 1, 1996.
The IBM Amendment provides, inter alia, that IBM will accept certain
payments from Maxtor.
HEI desires to grant, and MAXTOR desires to obtain, a sublicense under
certain rights granted to HEI under the Agreement.
Now, therefore, HEI and Maxtor agree as follows:
1. In accordance with section 2.7 of the IBM Agreement, HEI hereby grants to
Maxtor a sublicense under the rights granted to HEI by IBM under sections 2.1,
2.2, 2.3, and 2.4 of the IBM Agreement, and Maxtor agrees to accept such
sublicense, subject to all other applicable terms and conditions of the IBM
Agreement. Maxtor also agrees to and agrees to be bound by all other terms and
conditions of the IBM Agreement including, in particular, Section 2.8 hereof.
2. In partial consideration of the sublicense granted herein, Maxtor shall make
the payments specified in Section 4.1(a) of the IBM Agreement, as amended by the
IBM Amendment in the manner specified in Section 6.1 of the IBM Agreement, as
amended by the IBM Amendment.
3. Except as provided below, in the event that Maxtor shall fail to pay any one
or more of the installment payments of Section 4.1(a) of the IBM agreement, and
HEI pays any such installment under Section 4.2 of the IBM Agreement, as
amended, upon notice to Maxtor, Maxtor shall, within 30 days of such notice,
reimburse HEI for such installments together with any interest thereto paid by
HEI, via wire transfer to an account designated by HEI.
4. HEI agrees that one of the three opportunities to exercise the provisions of
Section 2.12 of the IBM Agreement, as amended, will be reserved for use in the
event that (a) Maxtor ceases to be a Subsidiary of HEI, whether through sale of
Maxtor stock to the public or through acquisition of all or a portion of the
assets or stock of Maxtor by a third party and (b) the provisions of section
2.12 of the IBM Agreement, as amended, are otherwise applicable. At
<PAGE> 2
Maxtor's request, HEI agrees to cooperate with the Recipient (as defined in of
Section 2.12 of the IBM Agreement, as amended) to effectuate the provisions of
Section 2.12 of the IBM Agreement, as amended. HEI agrees that, if it exercises
one or both of the other two opportunities pursuant to Section 2.12 of the IBM
Agreement, as amended, the transferred field(s) transferred to such Recipient(s)
shall not include Rotating Memory Products, except that such transferred
field(s) may include (a) RAID (but only to the extent such transferred field has
been transferred to another Recipient at the time of such a request by Maxtor)
and/or (b) Thin Film Media (but only to the extent that (i) MMC, or an assignee
or successor of MMC, is not owned or controlled by Maxtor at the time of such a
request by Maxtor or (ii) such field has been transferred to either MMC or an
entity acquiring substantially all assets of MMC as a Recipient). In the event
that one of the opportunities to exercise the provisions of Section 2.12 of the
IBM agreement, as amended, is used with respect to Maxtor, Maxtor's obligation
to make the payments referred to in Section 2 and 3 hereof shall continue until
termination of this Agreement as provided herein.
5. HEI shall have the right to terminate the sublicenses granted in Section 1 in
the event Maxtor ceases to be a Subsidiary of HEI within the meaning of Section
1.33 of the IBM Agreement or upon the failure of Maxtor to make any or all of
the payments referred to in Section 2 and 3 hereof.
6. In the event that IBM elects to accelerate payments under Section 4.3(a) of
the IBM Agreement, as amended, Maxtor's obligation to make the payments referred
t in Sections 2 and 3 hereof at he times indicated shall continue, except that
all payments becoming due after the date of such election by IBM shall be paid
to HEI rather than to IBM. In he event that the licenses granted to HEI under
the IBM Agreement, as amended, are terminated pursuant to section 4.3(b)
thereof, Maxtor's obligation to make any payments referred to in Sections 2 and
3 hereof that are due after the date of such termination, shall cease.
7. In the event that HEI's obligations to make payments to IBM under the IBM
Agreement, as amended, cease, whether by termination or amendment thereof,
Maxtor's obligations to make payments hereunder shall similarly cease., In the
event that HEI's obligations to make payments to IBM under the IBM Agreement as
amended, are reduced by agreement between HEI and IBM, and such reductions are
made in recognition of changed positions of HEI and/or IBM regarding either
licensed patents or business relating to Rotating Memories (as defined in
Section 1.24 of the IBM Agreement), the payments required to be made hereunder
by Maxtor shall be reduced accordingly, but only to the extent any such
reduction(s) of HEI's payment obligations are made in recognition of changed
positions of HEI and/or IBM regarding either patents or business relating to
Rotating Memories (as defined in Section 1.24 of the IBM agreement).
8. Except as provided in Section 6 and 7 hereof, Maxtors obligation to make the
payments to IBM referred to in sections 2 and 3 hereof shall cease or be reduced
only upon the mutual agreement of the parties.
9. Except as otherwise specifically provided herein this agreement shall be
subject to the terms and terms and conditions of the IBM Agreement, as amended,
as well as any future
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<PAGE> 3
amendments thereof. HEI agrees to notify Maxtor of any future amendments of the
IBM Agreement, prior to the execution thereof, and any such amendment which
affects the scope of the rights sublicensed hereunder to Maxtor shall be subject
to Maxtor's approval, which approval shall not be unreasonably withheld.
10. otices and other communications shall be sent by facsimile and by registered
or certified mail to the following addresses and shall be effective upon
mailing:
For HEI: For Maxtor:
Senior Manager, Patent Dept. General Counsel and Secretary
Hyundai Electronics Ind. Co., Ltd. MAXTOR CORPORATION
12th Floor Hyundai Jeonja Building 2190 Miller Drive
66 Cheoksoon-dong, Chongro ku Longmont, CO 80501
Seoul, Korea USA
Facsimile: 011-82-2733-2145 Facsimile: 001 1(303)678-3111
11. This Agreement shall be construed in accordance with the law of the State of
New York, USA, as such law applies to contracts signed and fully performed in
New York.
Agreed to: Agreed to:
HYUNDAI ELECTRONICS INDUSTRIES CO., LTD. MAXTOR CORPORATION
By: /s/ C.S. Chung By: /s/ Glenn H. Stevens
----------------------------- ---------------------------
C.S. Chung, Director
-3-
<PAGE> 1
EXHIBIT 10.56
TAX ALLOCATION AGREEMENT
AGREEMENT dated July 21, 1995, by and among Hyundai Electronics America
(parent, and hereinafter referred to as HEA) and each of its undersigned
subsidiaries.
WITNESSETH
WHEREAS, the parties hereto are members of an affiliated group
(Affiliated Group) as defined in Section 1504(a); and
WHEREAS, such Affiliated Group will file a U.S. consolidated income tax
return for its tax year 1994 and is required to file consolidated tax returns
for subsequent years; and
WHEREAS, HEA desires to exercise sole discretion over the methods by
which it files its consolidated federal income tax return, including assembly
and organization of information; filing of returns; payment of estimates, tax,
interest and penalties, tax audit and other contacts with the Internal Revenue
Service and settlement on its consolidated federal income tax return; and
WHEREAS, it is the intent and desire of the parties hereto that a method
be established for allocating the consolidated tax liability of the Affiliated
Group among its members, for reimbursing HEA for payment of such liability, for
compensating any party for use of its losses or tax credits, and to provide for
the allocation and payment of any refund arising from a carryback of losses or
tax credits from subsequent tax years.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. A U.S. consolidated income tax return shall be filed by HEA for the
tax year ended December 31, 1994, and for each subsequent taxable period in
respect of which this agreement is in effect and for which the Affiliated Group
is required or permitted to file a consolidated tax return. Each member of the
Affiliated Group shall execute and file such consent, elections, and other
documents that may be required or appropriate for the proper filing of such
returns.
2. Each subsidiary agrees that it will undertake all measures prescribed
by HEA to provide information requested by HEA for its consolidated federal
income tax return, cooperate as prescribed by HEA in any tax audit or
investigation of HEA's consolidated federal income tax return, execute any tax
settlement arrangement recommended by HEA in connection therewith, make prompt
payment to HEA of any consequential additional tax, interest or penalties
calculated, and make provision with HEA for regular review and approval by HEA
of tax procedures of the subsidiary.
3. HEA and each subsidiary agree that the consolidated tax liability for
each year, determined in accordance with Regulation 1.1502-2, shall be
apportioned among them in
1
<PAGE> 2
accordance with the provisions of Regulation 1.1502-33(d)(2)(ii), (effective for
taxable years beginning January 1, 1995, pursuant to amendment by T.D. 8560,
reference should be made to Regulation 1.1502-33(d)(3) and the applicable
provisions thereunder). In applying that regulation, the tax liability of the
group shall be allocated to the members of the group on the basis of the
percentage of the total tax which the tax of such member, if computed on a
separate return, would bear to the total amount of the taxes for all members of
the group so computed, pursuant to Section 1552(a)(2) of the Code and Regulation
1.1552-1(a)(2)(ii). Also, fixed percentage to be used for purposes of applying
Regulation 1.1502-33(d)(2)(ii)(b) shall be 100 percent. Thus, under Regulation
1.1502-33(d)(2)(ii)(b), an additional amount shall be allocated to each member
of the affiliated group equal to 100 percent of the excess, if any, of the
separate return tax liability of such member for the tax year (computed as
provided in Regulation 1.1552-1(a)(2)(ii) over the tax liability allocated under
Section 1552(a)(2) as outlined above, and credited to the members that had items
of income, deduction, credit, and so forth to which any difference is
attributable.
Under this provision there will be no additional benefit to the
subsidiaries for their losses in the current year, if HEA has the ability to
utilize its own net operating loss carryforwards. The following example
illustrates this point.
Example. If each member had filed a separate return, taxable income is
as follows: HEA $1,000, Sub I ($1,000), and all other members of the Affiliated
Group $0. Accordingly, the Affiliated Group's consolidated liability is $0. HEA
has net operating loss carryforwards from prior years in excess of $1,000. No
tax liability is allocated to HEA (and credited to Sub I) since HEA's separate
return liability would be $0 as a result of utilizing its net operating loss
carryforwards.
4. HEA and each subsidiary agree that if the consolidated tax liability
for each year includes any liability for alternative minimum tax and/or
environmental tax, the alternative minimum tax, allowable minimum tax credit,
and environmental tax shall be allocated among the members in accordance with
Proposed Regulations Section 1.1552-1(g). HEA and each subsidiary further agree
that upon subsequent revisions or finalization of the Proposed Regulations, this
paragraph shall be reviewed to determine whether such Regulations are consistent
with the intent of the parties to this agreement.
5. Payment of the consolidated tax liability for a taxable period shall
include the payment of estimated tax installments due for such taxable period,
and each subsidiary shall pay to HEA its share of each payment within ten days
or other mutually agreeable time of receiving notice of such payment from HEA,
but in no event later than the due date for each such payment. Any amounts paid
by a subsidiary on account of a separate return or separate estimated tax
payments that are credited against the consolidated tax liability of the
Affiliated Group shall be included in determining the payments due from such
subsidiary. Any overpayment of estimated tax should be refunded to the
subsidiary. Additions to tax, penalties, interest and other costs incurred by
HEA because a subsidiary has overestimated its tax benefit shall be borne by
that subsidiary.
2
<PAGE> 3
6. If for any taxable period the separate return liability of any member
of the Affiliated Group, including HEA, exceeds the consolidated tax liability
for such period as a result of any excess losses or tax credits of one or more
members, then the member who has absorbed the excess losses or credits shall pay
to each such member whose excess losses or credits were absorbed were absorbed
its allocable portion of such excess amount within 30 days after the date of
filing of the consolidated return for such period. In order to compute each
member's tax on a separate return basis, the Affiliated Group shall allocate to
each member, the Group's Research Credit and Foreign Tax Credit pursuant to the
principles of Regulations 1.41-8(a)(4) Examples (1) & (2), and 1.1502-4(f)(2),
respectively. The following example illustrates this point.
Example. If each member had filed a separate return, taxable income is
as follows: HEA $1,000, Sub I $1,000, and all other members of the Group $0.
Thus, HEA's consolidated liability is $680. The HEA Group is unable to generate
a research credit on a consolidated basis. Sub I's R&D expenditure and base
period computed on a separate return basis would result in a research credit of
$1,000. However, since the HEA consolidated group has no research credit, no
amount of credit is allowed to Sub I on a separate return basis. Therefore, $340
in tax liability would be allocated to both HEA and Sub I.
7. If part or all of an unused loss or tax credit is allocated to a
member of the Affiliated Group pursuant to Regulation 1.1502-79, and is carried
back or forward to a year in which such member filed a separate return or a
consolidated return with another affiliated group, any refund or reduction in
tax liability arising from the carryback or carryover shall be retained by such
member. Notwithstanding the above, HEA shall determine whether an election shall
be made not to carry back part or all of a consolidated net operating loss for
any tax year in accordance with Section 172(b)(3).
8. If the consolidated tax liability is adjusted for any taxable period,
whether by means of an amended return, claim for refund, or after a tax audit by
the Internal Revenue Service, the liability of each member shall be recomputed
to give effect to such adjustments, and in the case of a refund, HEA shall make
payment to each member for its share of the refund, determined in the same
manner as in paragraph 2 above, within ten days or other mutually agreeable
time, after the refund is received by HEA, and in the case of an increase in tax
liability, each member shall pay to HEA its allocable share of such increased
tax liability within ten days or other mutually agreeable time after receiving
notice of such liability from HEA.
9. If for any taxable period, a member's tax attributes (tax credits and
NOLs) are utilized by the Group in computing consolidated tax liability and the
member is not reimbursed on a current basis pursuant to this agreement, then
upon deconsolidation of any party to this agreement, the member shall be
reimbursed by the members of the Group who utilized the tax attributes only when
such members fully utilize their tax attributes.
10. Each subsidiary shall refrain from entering into agreements which,
in the opinion of HEA, affect the subject matter of this Agreement without the
prior written approval of HEA; submit to HEA for review and consolidation all
federal income tax returns and other related
3
<PAGE> 4
information sixty days prior to the required federal filing date (including
extensions) or at such other date as HEA may designate.
11. The principles expressed in this agreement with respect to the HEA
Affiliated Group federal income tax return shall apply with equal force to all
state and local income and franchise tax matters filed on a consolidated,
combined or unitary basis.
12. If during a consolidated return period HEA or any subsidiary
acquires or organizes another corporation that is required to be included in the
consolidated return, then such corporation shall join in and be bound by this
agreement.
13. This agreement shall apply to the tax year ending December 31, 1994,
and all subsequent taxable periods unless HEA and the subsidiaries agree to
terminate the agreement. Notwithstanding such termination, this agreement shall
continue in effect with respect to any payment or refunds due for all taxable
periods prior to the termination.
14. This agreement shall be binding upon and inure to the benefit of any
successor, whether by statutory merger, acquisition of assets, or otherwise, to
any of the parties hereto, to the same extent as if the successor had been an
original party to the agreement.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their duly authorized representatives on July 21, 1995.
Hyundai Electronics America
by /s/ Authorized Signatory
___________________________________________
Axil Computer, Inc.
by /s/ Authorized Signatory
___________________________________________
Image Quest Technologies, Inc.
by /s/ Authorized Signatory
___________________________________________
Symbios Logic Inc.
by /s/ Authorized Signatory
___________________________________________
Symbios Logic Solutions
by /s/ Authorized Signatory
___________________________________________
TV/COM International, Inc.
by /s/ Authorized Signatory
___________________________________________
4
<PAGE> 5
SUPPLEMENT TO TAX ALLOCATION AGREEMENT
Hyundai Electronics America (parent, and hereinafter referred to as HEA)
and each of its undersigned subsidiaries desire to modify the Tax Allocation
Agreement dated July 21, 1995 ("Tax Agreement"), as follows:
1. HEA and its subsidiary Symbios Logic, Inc. ("SYMBIOS") are parties
with Hyundai Electronics Industries Co., Ltd. to a Parent Ownership and License
Agreement effective February 16, 1995 ("License Agreement"). The License
Agreement will have certain U.S. federal and state income tax consequences.
2. For all purposes of the Tax Agreement, the MPD Patents and Patent
Applications ("MPD Patents") acquired by HEA from AT&T-G18 will be treated as
being owned exclusively by SYMBIOS. Moreover, SYMBIOS will be treated as owning
100% of the tax attributes associated with the MPD Patents, including tax basis
and amortization rights for the entire $40 million paid AT&T-18 for the MPD
Patents.
For example, the purposes of the Tax Agreement, SYMBIOS rather than HEA
will be entitled to amortize over the prescribed period 100% of the tax basis of
the MPD Patents in the calculation of its separate return tax liability under
the Tax Agreement.
3. While the Tax Agreement generally applies to Tax Allocations for
periods during which the parties participate together in filing a consolidation
return, in order to provide similar benefits to SYMBIOS for periods subsequent
to its participation with HEA in a consolidated return, HEA would continue to
make payments to SYMBIOS with respect to HEA's utilization of tax benefits
arising from deductions associated with the MPD Patents, at the time such
benefits are utilized and at HEA's marginal tax rates.
4. The parties to the Tax Agreement acknowledge that the provisions
herein may have the effect of creating distributions and capital contributions
for U.S. federal income tax purposes. For example, amortization deductions with
respect to the MPD Patents recognized by HEA for U.S. federal income tax
purposes but by SYMBIOS for purposes of the Tax Agreement may result in a
capital contribution by HEA to SYMBIOS due to the resulting reduction in the
SYMBIOS separate return tax liability under the Tax Agreement.
5. The parties to the Tax Agreement acknowledge that earnings and
profits adjustments and investment account adjustments recognized by Affiliated
Group members for U.S. federal Income tax purposes may differ from such
adjustments that would apply if the modification to separate return tax
liabilities under the Tax Agreement resulting from the provisions herein were
also effective for U.S. federal income purposes. For example, subject to the
provisions of paragraph 3 above, the "shifting" of amortization deductions with
respect to the MPD Patents from HEA to SYMBIOS for purposes of the Tax Agreement
are not anticipated to reduce the earnings and profits of SYMBIOS, or HEA's
investment in SYMBIOS for U.S. federal income tax purposes.
5
<PAGE> 6
6. This Supplement shall apply tot he same except as the Tax Agreement,
and during the same period.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their duly authorized representatives.
Hyundai Electronics America
by /s/ Authorized Signatory
___________________________________________
Axil Computer, Inc.
by /s/ Authorized Signatory
___________________________________________
Image Quest Technologies, Inc.
by /s/ Authorized Signatory
___________________________________________
Symbios Logic Inc.
by /s/ Authorized Signatory
___________________________________________
Symbios Logic Solutions
by /s/ Authorized Signatory
___________________________________________
TV/COM International, Inc.
by /s/ Authorized Signatory
___________________________________________
6
<PAGE> 7
ADDENDUM TO TAX ALLOCATION AGREEMENT
WHEREAS Hyundai Electronics America (parent, and hereinafter referred to
as HEA) has acquired or organized additional subsidiaries which will be included
in its federal consolidated income tax return; and
WHEREAS, HEA and the undersigned subsidiaries desire the new
subsidiaries to participate in the Tax Allocation Agreement dated July 21, 1995
("Tax Agreement").
NOW, THEREFORE, the undersigned subsidiaries shall join the Affiliated
Group and be bound by the Tax Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this addendum to be
executed by their duly authorized representatives.
Hyundai Electronics America
by /s/ Authorized Signatory
___________________________________________
Maxtor Corporation
by /s/ Authorized Signatory
___________________________________________
Odeum Microsystems
by /s/ Authorized Signatory
___________________________________________
7
<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 21.1
MAXTOR CORPORATION
SUBSIDIARIES OF THE REGISTRANT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Organized
Subsidiaries under Laws of
- ------------ -------------
<S> <C>
Maxtor Asia Pacific Limited ................................. Hong Kong
Maxtor Disc Drives Pty Limited .............................. Australia
Maxtor Europe GmbH .......................................... Germany
Maxtor Europe Limited ....................................... United Kingdom
Maxtor Europe SARL .......................................... France
Maxtor Japan Limited ........................................ Japan
Maxtor Korea Limited ........................................ Republic of Korea
Maxtor Ireland Limited ...................................... Ireland
Maxtor Peripherals (S) Pte. Limited ......................... Singapore
Maxtor Receivables Corporation .............................. California
Maxtor Sales Private Limited ................................ Singapore
Maxtor Thailand Limited ..................................... Thailand
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement of Maxtor
Corporation on Form S-1 (File No. ) of our report dated February 3,
1998, except for Notes 7 and 10 for which the date is April 9, 1998, Note 14,
and the ninth paragraphs of Notes 1 and 7, for which the date is June 3, 1998,
which includes an emphasis of a matter related to the Company's ultimate parent;
Hyundai Electronics Industries, Co., Ltd., on our audits of the consolidated
financial statements and schedule of Maxtor Corporation. We also consent to the
references to our firm under the captions "Experts" and "Selected Financial
Date."
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
San Jose, California
June 4, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and the use of our report dated April
25, 1996, except for the first paragraph of the "Subsequent Event" note as to
which this date is June 3, 1998, with respect to the financial statements and
schedule of Maxtor Corporation included in the Registration Statement (Form S-1)
and related Prospectus of Maxtor Corporation for the registration of
shares of common stock.
/s/ ERNST & YOUNG LLP
--------------------------------------
Ernst & Young LLP
San Jose, California
June 4, 1998
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon effectiveness of
the 1 for 2 reverse stock split described in Note 14 to the consolidated
financial statements.
/s/ ERNST & YOUNG LLP
--------------------------------------
Ernst & Young LLP
San Jose, California
June 4, 1998
<PAGE> 1
EXHIBIT 23.3
[LETTERHEAD]
June 5, 1998
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: MAXTOR CORPORATION REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
As counsel to Maxtor Corporation (the "Company"), we hereby consent to the
filing of this consent of counsel as an exhibit to the above-referenced
Registration Statement and to the use of our name wherever it appears in said
Registration Statement, including the Prospectus constituting a part thereof, as
originally filed or as subsequently amended.
Respectfully submitted,
/s/ Gray Cary Ware & Freidenrich LLP
GRAY CARY WARE & FREIDENRICH LLP
1 of 1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> DEC-27-1997
<CASH> 16,925
<SECURITIES> 0
<RECEIVABLES> 251,220
<ALLOWANCES> (3,573)
<INVENTORY> 155,312
<CURRENT-ASSETS> 440,698
<PP&E> 273,052
<DEPRECIATION> 173,716
<TOTAL-ASSETS> 555,472
<CURRENT-LIABILITIES> 552,205
<BONDS> 100,000
0
440
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> (221,046)<F1>
<SALES> 1,424,320
<TOTAL-REVENUES> 1,424,320
<CGS> 1,352,936
<TOTAL-COSTS> 1,352,936
<OTHER-EXPENSES> 168,769<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,502
<INCOME-PRETAX> (108,856)
<INCOME-TAX> 1,035
<INCOME-CONTINUING> (108,891)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (109,891)
<EPS-PRIMARY> 0<F3>
<EPS-DILUTED> 0<F3>
<FN>
<F1>Other- SE includes Series A Preferred Stock $440, additional paid in
capital of $535,205, unrealized gain on investment in equity securities
of $16, and accumulated deficit of $772,953
<F2>Other expenses include Research and Development expenses of $106,249,
Selling, general and administrative expenses of $62,520
<F3>Earning per share is not applicable
</FN>
</TABLE>
