<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the period ended September 26, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ______________ to ______________
Commission file Number: 0-14016
--------------------
MAXTOR CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 77-0123732
------------------------------- ----------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
510 Cottonwood Drive, Milpitas, CA 95035
---------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (408) 432-1700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
5.75% Convertible Subordinated Debentures, due March 1, 2012
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
------
As of November 9, 1998, 94,271,911 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
<PAGE> 2
MAXTOR CORPORATION
FORM 10-Q
SEPTEMBER 26, 1998
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
September 26, 1998 and December 27, 1997 3
Condensed Consolidated Statements of Operations -
Three months and nine months ended
September 26, 1998, and September 27, 1997 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 26, 1998,
and September 27, 1997 5 - 6
Notes to Condensed Consolidated Financial Statements 7 - 11
ITEM 2. Management's Discussion and analysis of
Financial Condition and Results of Operations 12 - 27
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE PAGE
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAXTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
<TABLE>
<CAPTION>
September 26, December 27,
ASSETS 1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 162,225 $ 16,925
Accounts receivable, net of allowance for doubtful accounts
of $5,935 at September 26, 1998 and $3,573 at December 27, 1997 279,367 241,777
Accounts receivable from affiliates 4,170 5,870
Inventories 151,952 155,312
Prepaid expenses and other 22,245 20,814
--------- ---------
Total current assets 619,959 440,698
Net property, plant and equipment 112,008 99,336
Other assets 11,201 15,438
--------- ---------
$ 743,168 $ 555,472
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Short-term borrowings including current portion of long term debt $ 5,261 $ 100,057
Short-term borrowings due to affiliates -- 65,000
Accounts payable 371,677 206,563
Accounts payable to affiliates 153 25,022
Accrued and other liabilities 100,608 155,563
--------- ---------
Total current liabilities 477,699 552,205
Long-term debt due to affiliates 55,000 --
Long-term debt and capital lease obligations due after one year 90,051 224,313
--------- ---------
Total liabilities 622,750 776,518
--------- ---------
Commitments and contingencies (Note 7) -- --
Stockholders' deficit:
Series A Preferred Stock, $0.01 par value, 95,000,000 shares authorized; all
outstanding shares converted into 44,029,850 shares of common stock at
August 5, 1998. 88,059,701 shares issued and outstanding at December 27,
1997; aggregate liquidation value $590,000 at December 27, 1997 880
Common Stock, $0.01 par value, 250,000,000 shares authorized;
94,257,739 shares issued and outstanding at September 26, 1998,
and 7,563 shares issued and outstanding at December 27, 1997 943 --
Additional paid-in capital 878,019 534,765
Cumulative other comprehensive income - unrealized gain
on investments in equity securities 13,234 16,262
Accumulated deficit (771,778) (772,953)
--------- ---------
Total stockholders' equity 120,418 (221,046)
--------- ---------
$ 743,168 $ 555,472
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
MAXTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
-------------------------------- --------------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 599,165 $ 383,363 $ 1,674,482 $ 895,381
Revenue from affiliates 632 8,863 6,197 26,947
------------ ------------ ------------ ------------
Total revenue 599,797 392,226 1,680,679 922,328
------------ ------------ ------------ ------------
Cost of revenue 525,933 362,659 1,477,510 880,489
Cost of revenue from affiliates 667 8,020 5,241 24,633
------------ ------------ ------------ ------------
Total cost of revenue 526,600 370,679 1,482,751 905,122
------------ ------------ ------------ ------------
Gross profit 73,197 21,547 197,928 17,206
------------ ------------ ------------ ------------
Operating expenses:
Research and development 40,189 26,714 110,285 78,631
Selling, general and administrative 18,643 15,536 52,958 45,944
Stock compensation expense 1,160 -- 11,068 --
------------ ------------ ------------ ------------
Total operating expenses 59,992 42,250 174,311 124,575
------------ ------------ ------------ ------------
Income (loss) from operations 13,205 (20,703) 23,617 (107,369)
Interest expense (6,573) (10,856) (24,109) (27,480)
Interest and other income 1,537 395 3,936 2,592
------------ ------------ ------------ ------------
Income (loss) before provision for income taxes 8,169 (31,164) 3,444 (132,257)
Provision for income taxes 2,091 199 2,269 700
------------ ------------ ------------ ------------
Net income (loss) 6,078 (31,363) 1,175 (132,957)
------------ ------------ ------------ ------------
Other comprehensive income:
Unrealized gain (loss) on investments in equity
securities (11,688) -- (3,028) --
------------ ------------ ------------ ------------
Comprehensive loss $ (5,610) $ (31,363) $ (1,853) $ (132,957)
============ ============ ============ ============
Net income per share - basic (note 2) $ 0.10 $ -- $ 0.06 $ --
Net income per share - diluted $ 0.08 $ -- $ 0.02 $ --
Shares used in per share calculation
- basic 59,515,691 -- 19,991,259 --
- diluted 76,860,814 -- 55,491,542 --
</TABLE>
See accompanying notes.
4
<PAGE> 5
MAXTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine months
ended
---------------------------
September 26, September 27,
1998 1997
--------- ---------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income (loss) $ 1,175 $(132,957)
--------- ---------
Adjustments to reconcile net income (loss)
Net cash provided by (used in) operating activities:
Depreciation and amortization 48,454 41,108
Stock compensation expense 11,068
Inventory reserves for lower of cost or market 7,852 (10,446)
Loss (gain) on disposal of property, plant and equipment 5,897 --
Other -- (128)
Changes in assets and liabilities:
Accounts receivable 8,908 (91,457)
Accounts receivable from affiliates 4,509 516
Inventories (4,492) (51,182)
Prepaid expenses and other (4,459) (606)
Accounts payable 157,710 89,060
Accounts payable to affiliates (24,869) 6,610
Accrued and other liabilities 10,362 7,485
--------- ---------
Total adjustments 220,940 (49,329)
--------- ---------
Net cash provided by (used in) operating activities 222,115 (141,997)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 3,059 --
Purchase of property, plant and equipment (61,600) (23,955)
Other assets 3,175 3,082
--------- ---------
Net cash used in investing activities (55,366) (20,873)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt, including short-term borrowings 69,775 194,370
Principal payments on debt, including short-term borrowings (308,849) (64)
Net payments under accounts receivable securitization (111,816) (40,289)
Proceeds from issuance of common stock 329,441 --
--------- ---------
Net cash provided by (used in) financing activities (21,449) 152,067
--------- ---------
Net change in cash and cash equivalents 145,300 2,679
Cash and cash equivalents at beginning of period 16,925 31,313
--------- ---------
Cash and cash equivalents at end of period $ 162,225 $ 33,992
========= =========
</TABLE>
See accompanying notes.
5
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MAXTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months
ended
-----------------------------
September 26, September 27,
1998 1997
------------- -------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 24,047 $ 17,792
Income taxes 985 832
Supplemental information on noncash investing and financing activities:
Purchase of property, plant and equipment financed by accounts payable 7,404 (64)
Purchase of property, plant and equipment financed by capital leases 16 620
Unrealized gain on equity securities (3,028) --
Stock compensation reimbursement due from an affiliate 2,809 --
Short-term Borrowings from affiliate exchanged for note 55,000 --
</TABLE>
See accompanying notes.
6
<PAGE> 7
MAXTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The consolidated financial
statements include the accounts of Maxtor Corporation ("Maxtor" or the
"Company") and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. From January 1996 through
July 30, 1998, Maxtor Corporation operated as a majority-owned subsidiary of
Hyundai Electronics America ("HEA"). HEA is a subsidiary of Hyundai Electronics
Co. Ltd. ("HEI"), a Korean corporation. On August 5, 1998, the Company closed
its Initial Public Offering of its Common Stock (the "Offering") which reduced
the ownership interest of HEA to approximately 48% (see Note 3). All adjustments
of a normal recurring nature which, in the opinion of management, are necessary
for a fair presentation of the results for the interim periods have been made.
It is recommended that the interim financial statements be read in conjunction
with the Company's audited consolidated financial statements and notes thereto
for the fiscal year ended December 27, 1997 incorporated in the Company's annual
report on Form 10-K, as amended. The balance sheet as of December 27, 1997 is
derived from the Company's audited financial statements and does not include all
of the related disclosures. Interim results are not necessarily indicative of
the operating results expected for later quarters or the full fiscal year.
2. NET INCOME (LOSS) PER SHARE
In accordance with the disclosure requirements of SFAS 128, a reconciliation of
the numerator and denominator of basic and diluted net income (loss) per share
calculations is provided as follows (in thousands, except share and per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NUMERATOR - BASIC AND DILUTED
Net income (loss) ............................. $ 6,078 $ (31,363) $ 1,175 $ (132,957)
=========== =========== =========== ===========
Net income (loss) available to common
stockholders ............................. $ 6,078 $ (31,363) $ 1,175 $ (132,957)
=========== =========== =========== ===========
DENOMINATOR
Basic weighted average common shares
outstanding .............................. 59,515,691 -- 19,991,259 --
Effect of dilutive securities
Common stock options ..................... 1,200,781 -- 731,324 --
Convertible preferred stocks ............. 16,144,342 -- 34,768,959 --
----------- ----------- ----------- -----------
Diluted weighted average common
shares ................................... 76,860,814 -- 55,491,542 --
----------- ----------- ----------- -----------
Basic net income (loss) per share ............. $ 0.10 $ -- $ 0.06 $ --
=========== =========== =========== ===========
Diluted net income (loss) per share ........... $ 0.08 $ -- $ 0.02 $ --
=========== =========== =========== ===========
</TABLE>
For the three and nine month periods ended September 27, 1997, the Company
operated as a wholly owned subsidiary with no common stock outstanding.
7
<PAGE> 8
Pro forma net income (loss) per share information reflecting the 44,029,850
shares of convertible preferred stock as if it had converted at the beginning of
the earliest period presented is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NUMERATOR - BASIC AND DILUTED
Net income ............................................ $ 6,078 $ (31,363) $ 1,175 $ (132,957)
============ ============ ============ ============
Net income (loss) available to
common stockholders .............................. $ 6,078 $ (31,363) $ 1,175 $ (132,957)
============ ============ ============ ============
DENOMINATOR - PRO FORMA
Pro forma basic weighted average
common shares outstanding ........................ 75,660,033 44,029,850 54,760,218 44,029,850
Effect of dilutive common stock options ............... 1,200,781 -- 731,324 --
------------ ------------ ------------ ------------
Pro forma diluted weighted average
common shares .................................... 76,860,814 44,029,850 55,491,542 44,029,850
------------ ------------ ------------ ------------
Pro forma basic net income (loss) per share ........... $ 0.08 $ (0.71) $ 0.02 $ (3.02)
============ ============ ============ ============
Pro forma diluted net income (loss) per share ......... $ 0.08 $ (0.71) $ 0.02 $ (3.02)
============ ============ ============ ============
</TABLE>
3. COMMON STOCK:
Reverse Stock Split
On May 29, 1998, the Board approved a one-for-two reverse split of the Company's
outstanding common stock, which became effective upon the Company's filing of an
amended and restated certificate of incorporation in Delaware on July 24, 1998.
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.
Initial Public Offering
On August 5, 1998, the Company completed the issuance of 49,731,225 shares of
its common stock in an initial public offering. The Company received
approximately $329.4 million net of issuance costs and underwriters'
commissions. Approximately $200.0 million of the proceeds have been used for
repayment of certain outstanding indebtedness under credit facilities due to
various banks (see Note 6). Upon closing of the Offering, all outstanding shares
of the Series A Preferred Stock converted into 44,029,850 shares of common
stock.
4. SUPPLEMENTAL FINANCIAL STATEMENT DATA (IN THOUSANDS)
<TABLE>
<CAPTION>
September 26, 1998 December 27, 1997
------------------ -----------------
<S> <C> <C>
Inventories:
Raw materials 33,887 48,834
Work-in process 14,109 15,177
Finished goods 103,956 91,301
-------- --------
$151,952 $155,312
======== ========
</TABLE>
8
<PAGE> 9
5. 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 operation.
6. SHORT AND LONG-TERM BORROWINGS
On July 31, 1998, the Company entered into a three year agreement with Fleet
Bank for a $200.0 million asset securitization program. This program replaces
the previous Citicorp program which was terminated on July 31, 1998 and, unlike
the Citicorp program, it does not require any support from HEA or any of HEA's
affiliates. Under the Fleet program, the Company sells all of its eligible trade
accounts receivable on a non-recourse basis through a special purpose vehicle.
The Company has arranged for a $204.0 million back-up liquidity facility to
support the program. As of September 26, 1998, $125.0 million of accounts
receivable was securitized under the program.
On July 31, 1998, the Company replaced its short-term borrowings from HEA of
$55.0 million with a three year subordinated note due July 31, 2001. This note
bears interest at six month LIBOR plus 2.0% which is payable semi-annually. As
of September 26, 1998, $55.0 million was outstanding on this note.
At June 27, 1998, the Company had two uncollateralized, syndicated lines of
credit through Citibank, N.A., both of which were guaranteed by HEI and amounted
to $129.0 million and $31.0 million. In August 1998, both of these lines of
credit were paid off and all related agreements were terminated. At June 27,
1998, in addition to the Citibank facilities, the Company had approximately
$40.0 million in borrowings under other credit facilities from two banks. In
August 1998, these facilities were also paid down and the related agreements
terminated.
7. CONTINGENCIES
STORMEDIA LITIGATION
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 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. On September 9, 1998, the California Suit was stayed. On October 11,
1998, Stormedia filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Act in the United States Bankruptcy Court in the Northern District of
California.
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 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
9
<PAGE> 10
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.
8. RECENT ACCOUNTING PRONOUNCEMENTS
During the quarter ended March 28, 1998 the Company adopted the Financial
Accounting Standards Board Statement SFAS No. 130, "Reporting Comprehensive
Income." In accordance with SFAS No. 130, the Company has disclosed
comprehensive income and restated the prior periods. Comprehensive income
generally represents all changes in stockholders' equity except those resulting
from investments or contributions by stockholders.
In June 1997, the Financial Accounting Standards Board issued Statement 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
requirement of SFAS No. 131 and the effects, if any on the Company's current
reporting and disclosures.
In June 1998, the Financial Accounting Standards Board issued statement of
Accounting Standards No. 133 (SFAS 133). "Accounting for Derivative Instruments
and Hedging Activities". SFAS 133 requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives which are not hedges
must be adjusted to fair value through net income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
are either offset against the change in fair value of assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
SFAS 133 is effective for years beginning after June 15, 1999, but companies can
early adopt as of the beginning of any fiscal quarter that begins after June
1998. The Company is evaluating the requirements of SFAS 133, but does not
expect this pronouncement to materially impact the Company's results of
operations.
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.
9. RELATED PARTY TRANSACTION
HEI (or one of its affiliates) had served as guarantor for the Company's
borrowings under various revolving bank credit facilities from August 1996 until
its termination in August 1998. Presently, none of the Company's debt is
guaranteed by HEI or any of its affiliates.
The cost of revenue includes certain component parts purchased from MMC
Technology, Inc. ("MMC"), a wholly owned subsidiary of HEA, amounted to $95.0
million during the nine months and $33.8 million during the three months ended
September 26, 1998. The Company signed a Supply Agreement with MMC effective on
August 18, 1998, with respect to pricing of future purchases and secures a
supply of product from MMC. (Exhibit 10.167)
10
<PAGE> 11
10. STOCK COMPENSATION
In 1996 the Company adopted the 1996 Stock Option Plan (the "Plan"), pursuant to
which substantially all of the Company's domestic employees and certain
international employees received options which were required to be accounted for
as variable options. These options, which were granted between May 1996 and
October 1997, required remeasurement of any intrinsic compensation element each
reporting date determined by the difference between the estimated current fair
value of the Company's stock and the exercise price of the options. In the first
quarter of 1998, the Company amended and restated the Plan to remove the
variable features and all grants subsequent to October 1997 have been subject to
fixed terms. In the second quarter of 1998, the Company offered and re-issued
new fixed award options in exchange for options previously issued under variable
terms, thereby eliminating the requirement to remeasure these options in
subsequent periods. Compensation expense has been reflected in the Company's
financial statements in accordance with Financial Accounting Standards Board
Interpretation No. 28, "Accounting for Appreciation Rights and Other Variable
Stock Option or Award Plans." Accordingly, the Company recorded non-cash
compensation expense of $1.2 million and $11.1 million, respectively, for the
three and nine month periods ended September 26, 1998. The remaining
unrecognized compensation element will be reflected in quarterly charges,
decreasing sequentially from the third quarter of 1998, through the second
quarter of 2001. During 1997, the Company also granted options to the employees
of MMC Technology, Inc. ("MMC"), a wholly owned subsidiary of HEA. MMC has
agreed to reimburse the Company for any compensation expense arising from such
grants.
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."
On May 29, 1998 the Company adopted the 1998 Employee Stock Purchase Plan (the
"Purchase Plan"). A total of 1.7 million shares of Common Stock have been
reserved for issuance under the Purchase Plan, none of which were issued as of
September 26, 1998. 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 commenced on the closing of the Company's public offering on August 5,
1998.
On May 29, 1998 the Company adopted the 1998 Restricted Stock Plan (the
"Restricted Stock Plan"), which provides for awards of shares of Common Stock to
employees. The Board of Directors of the Company 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, all of which were awarded in June
1998. 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. Vesting of these shares is subject to acceleration upon
the occurrence of a change of control.
11
<PAGE> 12
This Report on Form 10-Q contains forward-looking statements within the meaning
of the U. S. federal securities laws that involve risks and uncertainties. The
statements contained in this Report on Form 10-Q 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 the Report on Form 10-Q, the words "anticipates," "believes,"
"expects," "intends," "future" and similar expressions also identify
forward-looking statements. The Company makes these forward-looking statements
based upon informations 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 Report on Form 10-Q as a
result of certain factors including, but not limited to, those set forth in the
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations "Certain Factors Affecting Future Performance" and elsewhere in
this Report on Form 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and related note include elsewhere in this
report.
RESULTS OF OPERATIONS
Revenue and Gross Profit (Loss)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------- --------------------------------------------
(In millions) September 26, September 27, September 26, September 27,
Fiscal quarter ended 1998 1997 Change 1998 1997 Change
------------- ------------- ------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 599.8 $ 392.2 $ 207.6 $ 1,680.7 $ 922.3 $ 758.4
Gross profit (loss) $ 73.2 $ 21.5 $ 51.7 $ 197.9 $ 17.2 $ 180.7
As a percentage of revenue 12.2% 5.5% 11.8% 1.9%
Net income (loss) $ 6.1 $ (31.4) $ 37.5 $ 1.2 $ (133.0) $ 134.2
As a percentage of revenue 1.0% (8.0%) 0.1% (14.4%)
</TABLE>
Revenue. Between the three months ended September 27, 1997 ("Q397") and the
three months ended September 26, 1998 ("Q398") revenue grew from $392.2 million
to $599.8 million or 52.9%. Between the first nine months of 1997 and the first
nine months of 1998, the Company's revenue grew by 82.2%, increasing from $922.3
million in the first nine months of 1997 to $1,680.7 million the first nine
months of 1998. The increases in revenue for these periods 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 Personal Computer ("PC") original equipment manufacturings ("OEMs"). Revenue
growth from increased unit shipments was partially offset by continued price
erosion in the HDD market as a whole, which resulted in declining average
selling prices ("ASPs") throughout the period. The Company believes that the
effect of HDD market ASP declines on the Company's ASPs was contained partially
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 Q397 to Q398, revenue from sales to PC OEMs increased from 64.6% to 77.8%
of the Company's revenue. During this period, sales to three of the largest PC
OEMs, Dell Computer Corporation, International Business Machine Corporation, and
Compaq Computer Corporation increased from 34.4% to 54.5% of the Company's
revenue. From the first nine months of 1997 to the first nine months of 1998,
revenue from sales to PC OEMs increased from 57.5% to 75.4% of the Company's
revenue. During this period, sales to three of the largest PC OEMs, Dell
Computer Corporation, International Business Machine Corporation, and Compaq
Computer Corporation increased from 28.3% to 53.5% of the Company's revenue.
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<PAGE> 13
Gross Profit (Loss). Gross profit improved from $21.5 million for Q397 to $73.2
million in Q398; and gross profit improved from $17.2 million for the first nine
months of 1997 to $197.9 million in the first nine months of 1998. Gross margin
increased from 5.5% in Q397 to 12.2% in Q398; and gross margin increased from
1.9% in the first nine months of 1997 to 11.8% in the first nine months of 1998.
The improvement in gross margin during these periods is due to the timely
introduction of new, higher margin products which achieved market acceptance and
higher manufacturing yields. During these periods gross margin also was
favorably affected by improved product designs which led to improved
manufacturing yields and lower component costs. During these periods growth of
the Company's gross margin, 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.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------- --------------------------------------------
(In millions) September 26, September 27, September 26, September 27,
1998 1997 Change 1998 1997 Change
------------- ------------- ------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Research and development $ 40.2 $ 26.7 $ 13.5 $110.3 $ 78.6 $ 31.7
As a percentage of revenue 6.7% 6.8% 6.6% 8.5%
Selling, general and administrative $ 18.6 $ 15.5 $ 3.1 $ 53.0 $ 45.9 $ 7.1
As a percentage of revenue 3.1% 4.0% 3.2% 5.0%
Stock compensation expense $ 1.2 $ -- $ 1.2 $ 11.1 $ -- $ 11.1
As a percentage of revenue 0.2% 0.7%
</TABLE>
Research and Development Expense. R&D expense as a percentage of revenue
decreased from 6.8% in Q397 to 6.7% in Q398, while the absolute dollar level of
R&D spending during the same periods increased from $26.7 million to $40.2
million. Further, R&D expense as a percentage of revenue decreased from 8.5% in
the first nine months of 1997 to 6.6% in the first nine months of 1998, while
the absolute dollar level of R&D spending during the same periods increased from
$78.6 million to $110.3 million. The increase in absolute dollars during these
periods 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 Expense. SG&A expense as a percentage of
revenue declined from 4.0% in Q397 to 3.1% in Q398, while the absolute dollar
level of SG&A increased from $15.5 million to $18.6 million, respectively.
Further, SG&A expense as a percentage of revenue declined from 5.0% in the first
nine months of 1997 to 3.2% during the first nine months of 1998, while the
absolute dollar level of SG&A expenses increased slightly from $49.5 million to
$53.0 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 revenue
combined with the Company's ongoing cost control efforts.
Stock Compensation Expense. In 1996 the Company adopted the 1996 Stock Option
Plan (the "Plan"), pursuant to which substantially all of the Company's domestic
employees and certain international employees received options which were
required to be accounted for as variable options. These options, which were
granted between May 1996 and October 1997, required remeasurement of any
intrinsic compensation element each reporting date determined by the difference
between the estimated current fair value of the Company's stock and the exercise
price of the options. In the first quarter of 1998, the Company amended and
restated the Plan to remove the variable features and all grants subsequent to
October 1997 have been subject to fixed terms. In the second quarter of 1998,
the Company offered and re-issued new fixed award options in exchange for
options previously issued under variable terms, thereby eliminating the
requirement to remeasure these options in subsequent periods. Compensation
expense has been reflected in the Company's financial statements in accordance
with Financial Accounting Standards Board Interpretation No. 28, "Accounting for
Appreciation Rights and Other Variable Stock Option or Award Plans."
Accordingly, the Company recorded non-cash compensation expense of $1.2 million
and $11.1 million, respectively, for the three and nine month periods ended
September 26, 1998. The remaining
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<PAGE> 14
unrecognized compensation element will be reflected in quarterly charges,
decreasing sequentially from the third quarter of 1998, through the second
quarter of 2001. During 1997, the Company also granted options to the employees
of MMC Technology, Inc. ("MMC"), a wholly owned subsidiary of HEA. MMC has
agreed to reimburse the Company for any compensation expense arising from such
grants.
INTEREST EXPENSE AND INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------- -------------------------------------------
(In millions) September 26, September 27, September 26, September 27,
1998 1997 Change 1998 1997 Change
------------- ------------- ------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Interest expense $ 6.6 $ 10.9 $ (4.3) $ 24.1 $ 27.5 $ (3.4)
Interest and other income $ 1.5 $ .4 $ 1.1 $ 3.9 $ 2.6 $ 1.3
</TABLE>
Interest Expense. Interest expense as a percentage of revenue declined from 2.8%
in Q397 to 1.1% in Q398, while the absolute dollar level of interest expense
decreased from$10.9 million in Q397 to $6.6 million in Q398; and declined from
3.0% in the first nine months of 1997 to 1.4% in the first nine months of 1998,
while the absolute dollar level of interest expense decreased from $27.5 million
in the first nine months of 1997 to $24.1 million in the first nine months of
1998. The decrease in the absolute dollar amount of the Company's interest
expense between the first nine months of 1997 and the first nine months of 1998
was due primarily to the retirement of $200.0 million of debt in August, 1998.
The Company had $349.2 million of short-term and $224.0 million of long-term
credit borrowings outstanding at September 27, 1997, as compared to $5.3 million
current portion of long term debt and $145.1 million of long-term borrowings
outstanding at September 26, 1998.
Interest and other income. Interest and other income increased from $0.4 million
in Q397 to $1.5 million in Q398; and increased from $2.6 million to $3.9 million
between the first nine months of 1997 and the first nine months of 1998. The
increase between Q397 and Q398 was primarily due to the increase in cash and
cash equivalents generated from the initial public offering.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------- -------------------------------------------
(In millions) September 26, September 27, September 26, September 27,
1998 1997 Change 1998 1997 Change
------------- ------------- ------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Provision for income taxes $ 2.1 $ 0.2 $ 1.9 $ 2.3 $ 0.7 $ 1.6
</TABLE>
The provision for income taxes consists primarily of federal alternative minimum
tax and foreign taxes. The increase of $1.9 million is due to federal
alternative minimum tax on repatriation of foreign earnings in 1998.
INFORMATION SYSTEMS AND YEAR 2000 COMPLIANCE
YEAR 2000 COMPLIANCE
Year 2000 Issue Described: Many currently installed computer systems and
software products are coded to accept, store, or report only two digit entries
in date code fields. 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. This is the Year 2000 Issue. As a result, computer systems and/or
software used by many companies, including Maxtor and its vendors and customers,
will need to be upgraded to comply with such Year 2000 requirements. Maxtor
could be impacted by Year 2000 issues occurring in its own infrastructure or
faced by its major distributors, suppliers, customers, vendors and financial
service organizations. Such Year 2000 issues could include errors in
information, significant information system failures, or failures of equipment,
vendors, suppliers, or customers. Any disruption in Maxtor's operations as a
result of Year 2000 noncompliance, whether by Maxtor or a third party, could
have a material adverse effect on Maxtor's business, financial condition and
results of operations.
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<PAGE> 15
Maxtor's Hard Disk Drives Comply: Maxtor hard disk drives are able to operate in
the Year 2000 and beyond. The Year 2000 issue is only relevant to hardware and
software components that use or affect time and date data or system settings. In
the case of Maxtor's hard disk drives, the ability to operate correctly in the
next century is dependent on the software and programming loaded on to Maxtor's
hard disk drives by the system. Since Maxtor's hard disk drives have no inherent
time or date function, they will not determine whether or not a given system, or
any software on a given system, will operate correctly or incorrectly in the
next century. As a result, all Maxtor hard disk drives are able to receive,
store, and retrieve data and operate with a system or software that is Year 2000
compliant without modification.
Maxtor's State of Readiness: 1. Overview. To address Maxtor-wide internal Year
2000 readiness activities, Maxtor has implemented a corporate program to
coordinate efforts across all business functions and geographic areas, which
includes addressing risks associated with business partners and other
third-party relationships. The following four-step process is being followed to
prepare internally for the Year 2000: 1) Awareness, 2) Inventory, 3) Assessment,
and 4) Resolution. Maxtor is in the "inventory" or "assessment" phase, except
for core information technology ("IT") systems, which are being addressed
through the implementation of the SAP System (see below). Maxtor expects to have
substantially completed all four steps company-wide by the end of 1999.
Additionally, Maxtor is in the process of forming a Year 2000 Project Office to
coordinate the foregoing corporate program. Maxtor is also considering engaging
external Year 2000 consultants to assist with methodology and process of the
inventory, assessment, and resolution phases. Maxtor targets substantial
completion of "inventory" and "assessment" by the end of 1998. There can be no
assurance that Maxtor will be able to complete the four-step process or that the
process will adequately address the Year 2000 Issue.
2. Core IT Systems. Maxtor is implementing the R3 system from SAP A.G. (the "SAP
System"). The SAP System is designed to automate more fully Maxtor's business
processes, is certified by SAP A.G. as Year 2000 compliant, and has already
affected most functional areas, including, without limitation, finance,
procurement, inventory control, collections, order processing and manufacturing.
Historically, there have been substantial delays in the implementation of such
systems at other companies. The initial step of the implementation was completed
October 2, 1998, and affected all of the above-mentioned functional areas.
Additional phases of implementation are scheduled for the remainder of 1998 and
the first half of 1999 to stabilize and enhance the phase one implementation. In
connection with the implementation of the SAP System, Maxtor may experience
functional and performance problems, including problems relating to the SAP
System's response time and data integrity. There can be no assurance that Maxtor
will be able to continue to implement the SAP System successfully and on a
timely and cost effective basis or that the SAP System will not fail or prove to
be unsuitable for Maxtor's needs.
3. Other IT Systems. Maxtor's other IT systems include factory information and
control systems, computer aided design systems, banking interface systems,
electronic data interchange systems, credit card processing, customer call
management, human resources systems, non-U.S. payroll processing, and shipment
and just in time delivery management systems. Inventory of Maxtor's other IT
systems is believed to be complete. Maxtor has determined that most human
resources systems, factory information systems, call management system,
non-United States payroll processing and supplier just in time delivery
management systems are not Year 2000 compliant, but the assessment of other IT
systems has not yet been completed.
4. Non-IT Systems. Maxtor's non-IT systems include departmental and personal
automated applications used in all functional areas of Maxtor, building systems
such as heating, cooling, and air purification, component and hard disk drive
test equipment, and manufacturing equipment. Inventory of Maxtor's non-IT
systems is underway. Assessment will include determination of the level of risk
of business interruption associated with a failure of the non-IT system and
assignment of priority to resolution activities. Resolution priority will be
assigned to repair or replacement of items that affect new product development,
volume production and distribution.
5. Vendors and Suppliers. Maxtor's vendors and suppliers include the sources of
materials used in Maxtor's hard disk drives, the sources of the equipment and
supplies used by Maxtor in the conduct of its business, as well as Maxtor's
landlord's, financial institutions, and other service providers. Inventory of
Maxtor's suppliers is underway. Assessment will include determination of the
level of risk of business interruption associated with a failure of a vendor or
supplier because of the Year 2000 Issue and assignment of priority to resolution
activities.. It is Maxtor's intent to seek written assurance from its vendors
and suppliers of their capability to support Maxtor properly in and after the
Year 2000.
6. Customers. Maxtor's assessment of its Year 2000 issues with its customers
will dovetail with similar activities which Maxtor's customers will engage in
with respect to Maxtor. Several Maxtor customers, including Maxtor's three
largest original equipment manufacturer customers, Compaq, Dell, and IBM, have
begun the process of
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<PAGE> 16
asking Maxtor for written assurances that Maxtor hard disk drives do not have
Year 2000 issues and that Maxtor's business will not be affected by the Year
2000 issue.
The Costs to Address Maxtor's Year 2000 Issue: Maxtor has not determined
historic or period costs which may have been incurred in connection with the
resolution of Year 2000 issues. Maxtor does not have any projections of costs
which may be incurred in future periods to resolve Year 2000 issues. It has not
been determined whether such costs would be material.
The Risks of Maxtor's Year 2000 Issues: Resolution of the foregoing has been and
will be complex, expensive and time intensive and could be adversely affected by
various risk factors, including without limit: (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; (iii)
the scope of the implementation plan being expanded by unanticipated changes in
Maxtor's business or findings in Maxtor's awareness, inventory or assessment of
risk; (iv) any failure to devise and run appropriate testing procedures that
accurately reflect the demands that will be placed on new systems following
implementation; (v) any failures by vendors or other third parties to accurately
assess their own Year 2000 readiness or the Year 200 readiness of their
respective vendors and other third parties and any resulting failures; and (vi)
any failure to develop and implement adequate fall-back, work around or other
contingency plans in the event that difficulties or delays arise. It has been
widely predicted that a significant amount of litigation surrounding business
interruptions will arise out of Year 2000 Issues. It is uncertain whether, or to
what extent, Maxtor may be affected by such litigation. Because Maxtor's hard
disk drives are able to operate in the Year 2000 and beyond, Maxtor does not
anticipate exposure to material product defect or similar litigation. There can
be no assurance, however, that any such litigation will not be brought or will
not have material effect. There is no assurance that Maxtor could receive any
assistance, damages or other relief as a result of its initiation of any
litigation related to the Year 2000 Issue. The inability of Maxtor to implement
its Year 2000 plans or to otherwise address Year 2000 Issues in a timely manner
could have a material adverse effect on Maxtor's business, financial condition
and results of operations.
Maxtor's Contingency Plans: As part of the four-step process outlined above,
specific contingency plans will be developed in connection with the assessment
and resolution to the risks identified. Maxtor has currently established certain
IT contingency plans, and it is continuing to develop such plans regarding each
specific area of risk associated with the Year 2000 Issue There is no assurance
that Maxtor will complete contingency plans that address risks which actually
arise or that any such contingency plans will properly address their intended
purposes if they are implemented. In addition, Maxtor does not have and does not
anticipate obtaining any policy of insurance which contains material coverage
for potential injuries or damages related to or caused by the Year 2000 Issue.
Summary: Maxtor's operations may be disrupted if Maxtor itself or Maxtor's
vendors, suppliers, or customers fail adequately to address the Year 2000 issue.
Any such disruption in Maxtor's operations as a result of Year 2000
noncompliance, whether by Maxtor or a third party, could have a material adverse
effect on Maxtor's business, financial condition and results of operations,
including without limit potential loss of revenue, increased costs, or delays in
product development, production, or distribution.
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<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
At September 26, 1998, the Company had $162.2 million in cash and cash
equivalents as compared to $16.9 million at December 27, 1997. Operating
activities provided net cash of $222.1 million for the nine month period ended
September 26, 1998 as compared to utilizing net cash of $142.0 million for the
nine month period ended September 27, 1997. Cash provided by operating
activities for the nine months ended September 26, 1998 was generated
principally by operations and a decrease in working capital. The increase in
cash generated from operations was primarily due to increased sales and improved
margins. The Company used $55.3 million in investing activities during the nine
months ended September 26, 1998, principally for the purchase of plant and
equipment. In this period the Company reduced short and long-term debt by $239.1
million using proceeds from the Initial Public Offering and cash from
operations..
On August 5, 1998, the Company completed the issuance of 49,731,225 shares of
its common stock in an initial public offering. The Company received $329.4
million net of offering costs and underwriters' commissions. Approximately
$200.0 million of these proceeds were used in August 1998 for repayment of
certain outstanding indebtedness under credit facilities due to various banks.
Upon closing of the Offering, all outstanding shares of the Series A Preferred
Stock converted into 44,029,850 shares of common stock. At September 26, 1998
the Company had a total of 94,257,739 shares of common stock outstanding.
At September 26, 1998, the Company had approximately $145.0 million of long-term
unsecured debt and $5.3 million in current portion of long term debt which were
comprised of $55.0 million of a three year note from HEA and $95.0 million of
publicly-traded Subordinate Debentures. The Company's outstanding 5.75%
Subordinated Debentures due March 1, 2012 are entitled to annual sinking fund
payments of $5.0 million which commenced March 1, 1998.
The Company also has a $200.0 million asset securitization program under which
the Company sells its eligible accounts receivable on a non-recourse basis. At
September 26, 1998, $125.0 million of accounts receivable was securitized under
the program.
CERTAIN FACTORS AFFECTING FUTURE PERFORMANCE
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 HDD industry, including fluctuations in demand and declining average
selling prices ("ASPs"). As of December 27, 1997, the Company had an accumulated
deficit of approximately $773.0 million and as of September 26, 1998, the
Company had an accumulated deficit of approximately $771.8 million. While the
Company achieved operating profits and net income for the quarter ended December
27, 1997, it recorded operating and net losses for the fiscal year ended
December 27, 1997. 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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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<PAGE> 18
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)
changes in product or customer mix; (v) entry of new competitors; (vi) the
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 and retailers; (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 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. The Company expects ASPs to continue to
decline for the remainder of the year and through the second quarter of 1999.
This continuing price erosion could have a material adverse effect on the
Company's business, financial condition and results of operations.
In July 1996, the Company began to modify its management and operational
structures. From the first quarter of 1997 to the first quarter of 1998, and
again in the third quarter of 1988, the Company's timely introduction and volume
production of competitive products resulted in quarterly revenue growth. Such
restructuring activities and revenue growth placed and are expected in the
future 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."
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<PAGE> 19
RISKS OF FAILED EXECUTION; CHANGING CUSTOMER BUSINESS MODELS
PC original equipment manufacturers ("OEMs") compete in a market that is
consolidating market share among the top ten PC OEMs, which accounted for
greater than 50% of all PC units shipped during 1997 and the first nine months
of 1998. A majority of the Company's HDDs are sold to PC OEMs, which accounted
for 77.8% of the Company's revenues for the third quarter of 1998. The process
of qualifying the Company's products with these PC OEM customers can be complex
and difficult. These PC OEMs use the quality, storage capacity and performance
characteristics of HDDs to select their HDD providers. A 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 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, 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 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" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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 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
desktop HDDs.
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<PAGE> 20
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 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, breadth of product
lines, reliability, and technical service and support. The Company believes it
generally competes favorably with respect to these factors. 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 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 PC OEM customers to reliably forecast
demand for the Company's products. The Company does not enter into long-term
supply contracts with its 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.
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 PC 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.
See "-- Highly Competitive Industry," "-- Customer Concentration" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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<PAGE> 21
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 and optically-assisted recording
technologies which technologies have either already been introduced or are being
developed currently by other companies. 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.
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.
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
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" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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<PAGE> 22
CONTROL BY AND DEPENDENCE ON HYUNDAI
Four out of the seven members of the Company's Board of Directors (the "Board")
are currently employees of HEA or one of its affiliates. HEA currently has the
contractual right to designate one person for nomination to serve as a director
in each of the three classes of the Board. Accordingly, HEA will be able to
influence or 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 additional 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 of Incorporation (the "Amended and Restated
Certificate of Incorporation") and Bylaws (the "Bylaws") and other corporate
governance issues. In particular, the affirmative vote of two-thirds of the
outstanding voting stock is required to approve certain types of amendments to
the Amended and Restated Certificate of Incorporation. Consequently, HEA will be
able to block approval of any such amendments that may be proposed in the future
as long as it owns at least one-third of the Common Stock and may be able to
make it difficult to achieve approval of any such amendment for as long as it
owns a significant amount of Common Stock even if its ownership falls below
one-third. The Company has granted HEA the contractual right to maintain its
ownership interest at 30% through 2000. 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 designate for nomination up to three
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. HEA
has also agreed to certain restrictions on its rights to solicit proxies, to
acquire additional shares of Common Stock and to compete with the Company.
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 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. The Board of Directors has established an
Affiliated Transaction Committee comprised entirely of directors not affiliated
with HEA or its affiliates. The charter of the committee is to review all
material transactions between the Company and HEA and or 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 Common
Stock in the public market could adversely affect prevailing market prices for
the Common Stock.
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. 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 joint
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. The Company is in the process of obtaining such a license. HEI and the
Company have indemnified each other for certain liabilities arising from their
acts or omissions relating to the IBM License Agreement.
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<PAGE> 23
As discussed more fully above in "-- Transition to and Dependence on Information
Systems; Year 2000 Problem," the Company is preparing to implement the SAP
System. The Company's rights to the SAP 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 software 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 "-- Single Manufacturing Facility; Future Need for Additional Capacity."
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 a 450,000 square foot manufacturing
facility in Dalian, China (the "Dalian Facility") 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 are 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.
The Company is experiencing space constraints at its Longmont, Colorado facility
and is exploring opportunities to obtain additional space at a new facility in
the Longmont area. There can be no assurance that the Company will be able to
obtain additional space that can accommodate its needs or that, if obtained,
such additional space will be available to the Company on terms at least as
favorable as the terms governing its current lease.
See "-- Need for Additional Capital," "-- Dependence on International Operation;
Risks from International Sales" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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<PAGE> 24
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 level of profitability, 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. Pursuant to the Amended and
Restated Certificate of Incorporation, the Board has authority to issue up to 95
million shares of preferred stock and to fix the rights, preferences and
privileges of such shares (including voting rights) without any further action
or vote by the stockholders.
In the future the Company may require alternative sources of liquidity. 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 and, if adequate
funds were not available from operating profits, would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "-- Control by and Dependence on Hyundai," "-- Single Manufacturing
Facility; Future Need for Additional Capacity" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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 nine months ended
September 26, 1998, three customers, accounted for approximately 27%, 16% and
10% respectively, of the Company's revenues, and the Company's top ten customers
accounted for approximately 83% of the Company's revenue. During the fiscal year
ended December 27, 1997, two PC OEM customers, 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. 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 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" and "-- Dependence on
International Operations; Risks from International Sales."
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<PAGE> 25
DEPENDENCE ON SUPPLIERS OF COMPONENTS AND SUB-ASSEMBLIES
The Company does not manufacture any of the components used in its HDDs and
therefore 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 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."
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.
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<PAGE> 26
As a majority-owned subsidiary of HEA, the Company has 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
majority-owned subsidiary of HEA. There can be no assurance that the Company
will be able to obtain similar rights in the future on terms as favorable as
those currently available to it.
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 obtain appropriate licenses or cross-licenses, 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 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
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 (collectively
"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 "-- Dependence on International Operations; Risks of International Sales."
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 revenue 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
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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, and 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" and
"-- Limited Protection of Intellectual Property; Risk of Third Party Claims of
Infringement."
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
STORMEDIA LITIGATION
The Company currently is involved in a dispute with StorMedia, 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
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 the
Original Defendants 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. On September 9, 1998, the California Suit
was stayed. On October 11, 1998, Stormedia filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Act in the United States Bankruptcy Court in
the Northern District of California.
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 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 and results of operations. No amounts related to
any claims or actions have been reserved in the Company's financial statements.
28
<PAGE> 29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, NOT
APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting was held July 17, 1998, at which its stockholders
reelected Michael R. Cannon and C. S. Park as Class III directors to hold office
for a three-year term, and ratified the appointment of PricewaterhouseCoopers &
Lybrand L.L.P. as the Company's independent accounting firm for the
Corporation's fiscal year ending December 26, 1998.
Messrs. Cannon and Park received the following votes for and against:
<TABLE>
<CAPTION>
For Withheld Abstain
--- -------- -------
<S> <C> <C> <C>
Michael R. Cannon 88,148,190 0 0
C. S. Park 88,148,190 0 0
</TABLE>
The ratification of the appointment of PricewaterhouseCoopers & Lybrand L.L.P.
received the following votes for and against:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
88,144,190 0 4,000 (pre-split)
</TABLE>
The following directors' terms of office continue until the Annual Meeting
indicated: C. S. Chung, Charles Hill and Philip S. Paul (Class I term expires at
the 1999 Annual Meeting); Charles F. Christ and Y. H. Kim (Class III term
expires at the 2000 Annual Meeting).
Also effective July 17, 1998, the Company's stockholders approved by written
consent the Company's Amended and Restated Certificate of Incorporation (the
"Certificate") authorizing a two-for-one reverse stock split of the Common
Stock, eliminating the right of stockholders to act by written consent,
eliminating the right of stockholders to call special meetings of stockholders,
clarifying the exclusive right of the Board of Directors to fill vacancies and
new directorships, providing that certain provisions of the Certificate may be
amended only by the affirmative vote of two-thirds of the outstanding voting
stock and regulating the approval required for corporate opportunities and
related party transactions. Also approved by written consent were certain
amendments to the Company's Amended and Restated 1996 Stock Option Plan (the
"Plan"), including a 7,727,832-share (pre-split) increase in the share reserve
for the Plan, with such reserve to be increased to 15 percent of the number of
shares of Common Stock issued and outstanding on the closing date of the
Company's Offering (a total post-split reserve of 13,798,181 shares of Common
Stock). Stockholders representing 88,059,701 shares of Preferred Stock and
73,489 (pre-split) shares of Common Stock voted in favor of the amendments to
the Certificate; and stockholders representing 88,059,701 shares of Preferred
Stock and 88,489 (pre-split) shares of Common Stock voted in favor of the
amendment of the Plan.
ITEMS 2 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(SEE INDEX TO EXHIBITS ON PAGE 31 OF THIS REPORT.)
There were no reports filed on Form 8-K during the reporting period ended
September 26, 1998.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
MAXTOR CORPORATION
By /s/ Paul J. Tufano
--------------------------------
Paul J. Tufano
Vice President, Finance and
Chief Financial Officer
Date: November 10, 1998
30
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.167 Supply Agreement, dated as of August 18, 1998, between Maxtor
Corporation and MMC Technology, Inc.
10.168 Purchase and Sale Agreement, dated as of July 31, 1998,
between Maxtor Corporation and Maxtor Receivables Corporation
58 - 105
10.169 Receivables Purchase Agreement, dated as of July 31, 1998,
among Maxtor Receivables Corporation and Maxtor Corporation
and Blue Keel Funding, LLC and Fleet National Bank
10.170 Appendix A to the Receivables Purchase Agreement, dated as of
July 31, 1998, among Maxtor Receivables Corporation, Maxtor
Corporation, Blue Keel Funding, LLC and Fleet National Bank
27 Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
E-1
31
<PAGE> 1
EXHIBIT 10.167
SUPPLY AGREEMENT
PREAMBLE
This Supply Agreement ("Agreement"), effective August 18, 1998 ("Effective
Date") is made by and between Maxtor Corporation, a Delaware corporation, having
principal places of business at 510 Cottonwood Drive, Milpitas, California 95035
and 2190 Miller Drive, Longmont, Colorado 80501 ("Maxtor"), and MMC Technology,
Inc., a California corporation, having its principal place of business at 2001
Fortune Drive, San Jose, California 95131 ("MMC").
RECITALS
Whereas, MMC is in the business of designing, manufacturing and selling thin
film disk media ("Product") for hard disk drives which are competitive
in price, quality and technology and wishes to sell such Product to
manufacturers of disk drives such as Maxtor. "Product" includes single
and dual side media, all form factors of media, and all substrates;
Whereas, "Maxtor" shall include Maxtor Peripherals (S) Pte Ltd, having a place
of business at No 2 Ang Mo Kio Street 63, Ang Mo Kio Industrial Park 3,
Singapore 569111;
Whereas, Maxtor wishes to secure a supply of Product and to purchase quantities
of such Product from MMC meeting Maxtor's specifications set forth on
Exhibit A and for use in Maxtor's hard disk drives ("HDD"), and,
subject to the terms and conditions hereof, Maxtor shall purchase a
[***] ("Requirement");
Whereas, MMC shall manufacture and deliver to Maxtor, its agents, and/or its
subsidiaries, Product as set forth in this Agreement, including its
Terms and Conditions;
Whereas, the parties recognize that the disk drive market is very demanding of
quality, timeliness, and price, and that the essence of the
relationship between Maxtor and MMC is flexibility; timely delivery of
necessary quantities of qualified, high-yield Products; and low costs;
Whereas, [***] with the expectation that this relationship will provide an
excellent opportunity for synergy between the two companies and
capitalize on the mutual benefits of sharing of information and
technical resources;
Whereas, if problems should be encountered with respect to any aspect of this
Agreement or if the parties should encounter any problems not covered
by this Agreement, Maxtor and MMC shall discuss them in a cooperative
and sincere spirit and attempt to arrive at a mutually acceptable
solution; and
Whereas, this Agreement commences on the Effective Date and terminates on
September 30, 2001 ("Termination Date") unless terminated earlier or
extended as provided herein;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND ADEQUACY OF
WHICH IS HEREBY ACKNOWLEDGED, AND IN CONSIDERATION OF THE ABOVE PREMISES AND THE
MUTUAL PROMISES CONTAINED IN THIS AGREEMENT, THE PARTIES AGREE AS FOLLOWS:
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SUPPLY AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I -- PRODUCTS.................................................. 3
1.1 PRODUCT......................................................... 3
Purchase and Supply............................................... 3
Specification..................................................... 3
[***] ............................................................ 3
Freedom of Action................................................. 3
Second Sources.................................................... 3
1.2 WARRANTY........................................................ 3
Authority Warranty................................................ 3
Product Warranty.................................................. 3
Year 2000 Warranty................................................ 3
Scope of Warranty................................................. 4
Warranty Disclaimer............................................... 4
1.3 REMEDIES........................................................ 4
Product Remedies.................................................. 4
1.4 PRICES.......................................................... 4
Product Price..................................................... 4
Terms of Sale..................................................... 5
ARTICLE II -- PROCEDURES............................................... 6
2.1 QUALIFICATION................................................... 6
Qualification..................................................... 6
Changes........................................................... 6
2.2 TOOLING......................................................... 6
2.3 [***], FORECASTS, AND ORDERS.................................... 6
[***] ............................................................ 6
Forecasts......................................................... 7
MMC's Capacity.................................................... 7
Maxtor's Forecast Allocation...................................... 7
Shortages......................................................... 7
2.4 ORDERS.......................................................... 7
Orders............................................................ 7
Precedences....................................................... 7
End of Life....................................................... 8
2.5 INSPECTION...................................................... 8
Inspection by Maxtor.............................................. 8
Inspection by MMC................................................. 8
In Case Of Failure of Inspection.................................. 8
Stop Ship Order................................................... 8
2.6 SHIPPING........................................................ 8
Carrier........................................................... 8
Timeliness........................................................ 8
Shipping Documents................................................ 8
Packing........................................................... 9
2.7 JUST IN TIME (JIT) DELIVERY..................................... 9
2.8 ACCEPTANCE...................................................... 9
2.9 RETURNS......................................................... 9
2.10 EPIDEMICS....................................................... 9
2.11 INVOICING....................................................... 9
2.12 PAYMENT......................................................... 9
Terms............................................................. 9
Currency.......................................................... 10
Disputes.......................................................... 10
Bills............................................................. 10
Payment Applications.............................................. 10
Payment Assurance................................................. 10
2.13 ORDER CHANGES................................................... 10
Changes........................................................... 10
Cancellation...................................................... 10
2.14 ENGINEERING CHANGES............................................. 10
Definition........................................................ 10
MMC Change(s)..................................................... 10
Maxtor Change(s).................................................. 11
2.15 WORKING RELATIONSHIP............................................ 11
ARTICLE III -- INTELLECTUAL PROPERTY................................... 12
3.1 CONFIDENTIALITY................................................. 12
Confidential Information.......................................... 12
Items Declared Confidential....................................... 12
3.2 PUBLICITY....................................................... 12
3.3 LICENSES........................................................ 12
License for Ordinary Use.......................................... 12
No Other Licenses................................................. 12
3.4 ASSIGNMENT OF RIGHTS............................................ 12
Inventions........................................................ 12
Ownership......................................................... 12
ARTICLE IV -- LIABILITIES.............................................. 13
4.1 GENERAL INDEMNITY............................................... 13
4.2 INFRINGEMENT INDEMNITY.......................................... 13
4.3 STRICT LIABILITY................................................ 13
4.4 LIMITATION OF LIABILITY......................................... 13
ARTICLE V -- DISPUTE RESOLUTION........................................ 14
5.1 ESCALATION...................................................... 14
5.2 ARBITRATION..................................................... 14
Binding Arbitration............................................... 14
Injunctive Relief................................................. 14
Governing Language................................................ 14
5.3 CHOICE OF LAW................................................... 14
Choice of Law..................................................... 14
Foreign Corrupt Practices Act..................................... 14
Export Controls................................................... 14
5.4 LIMIT OF TIME TO BRING ACTION................................... 14
ARTICLE VI -- GENERAL.................................................. 15
6.1 TERM AND TERMINATION............................................ 15
Term.............................................................. 15
Renewal........................................................... 15
Termination....................................................... 15
Duties Upon Termination........................................... 15
Survival.......................................................... 15
6.2 GENERAL......................................................... 15
Assignment........................................................ 15
Audit............................................................. 15
Consents.......................................................... 16
Counterparts...................................................... 16
Cumulation of Remedies............................................ 16
Independent Parties............................................... 16
Force Majeure..................................................... 16
Governing Language................................................ 16
Headings.......................................................... 16
Joint Work Product................................................ 16
Notices........................................................... 16
Severance......................................................... 16
Time.............................................................. 16
Waiver............................................................ 16
6.3 ENTIRE AGREEMENT................................................ 17
6.4 ELECTRONIC EXECUTION............................................ 17
</TABLE>
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SUPPLY AGREEMENT
TERMS AND CONDITIONS
ARTICLE I -- PRODUCTS
1.1 PRODUCT.
1.1.1 Purchase and Supply. Maxtor wishes to secure a supply of Product and to
purchase quantities of such Product from MMC meeting Maxtor's specifications set
forth on Exhibit A and for use in Maxtor's HDD. MMC wishes to supply such
Product to Maxtor on such conditions and on the terms and conditions of this
Agreement. Therefore, subject to the terms and conditions of this Agreement,
Maxtor will purchase and MMC will supply Product for the term of this Agreement.
Maxtor's obligation to purchase Product from MMC is contingent upon MMC's
Product meeting Maxtor's HDD requirements, time to market requirements, time to
volume requirements, Product specifications and functional requirements
(including without limit media-chargeable HDD yields), price requirements, and
the other terms and conditions of this Agreement.
1.1.2 Specification. As of the Effective Date, Exhibit A may not be attached.
The parties will from time to time agree in writing upon specifications for the
Product or amendments to agreed-upon specifications and such agreed-upon
specifications or amendments shall become parts of Exhibit A and shall be
incorporated into this Agreement when each such written agreement is made.
1.1.3 [***].
1.1.4 Freedom of Action. Nothing in this Agreement shall prevent either party
from engaging in similar business with other persons, including, without limit,
competitors of the other party, provided that the confidentiality terms of this
Agreement are not breached.
1.1.5 Second Sources. MMC understands that Maxtor qualifies additional
sources for Products or the same or substantially similar goods or materials
from time to time and places its orders among qualified suppliers as it sees
fit. Nothing in this Agreement will prevent Maxtor from procuring Products or
the same or substantially similar goods or materials from other sources than MMC
or from providing the same itself, provided that the confidentiality and
intellectual property rights terms of this Agreement are not breached.
1.2 WARRANTY. Each of MMC's warranties made hereunder is materially relied
upon by Maxtor in entering into this Agreement or any Order.
1.2.1 Authority Warranty. Each party represents and warrants that all
corporate action necessary for the authorization, execution and delivery of this
Agreement by such party and the performance of its obligations under this
Agreement has been taken. Further, each party represents and warrants that
neither the execution of this Agreement nor any performance of this Agreement
shall conflict with or be prohibited by any interest, agreement, obligation,
contract, order, law, regulation, or duty, oral or written, to which it is a
party or by which it is bound.
1.2.2 Product Warranty. MMC warrants the Product, upon delivery and for [***]
thereafter, to:
(i) have a clear title, free of all security interests,
encumbrances, or liens;
(ii) not infringe any patent, trademark, copyright, trade secret,
or other intellectual property right of any third person;
(iii) be newly manufactured and not used or reworked (except as
provided in Maxtor-approved procedures);
(iv) be free from defects in workmanship and materials;
(v) conform to applicable specifications, drawings, or other
descriptions given, including those set forth in this Agreement and MMC's sales
literature;
(vi) possess the qualities of goods which MMC has held out to
Maxtor as a sample or model;
(vii) initially meet and continue to meet Maxtor's qualification
criteria and standards (this specific warranty shall not apply to any Order
which is declared a "Risk Buy" in writing by Maxtor); and
(viii) be contained or packaged according to Maxtor's specifications.
The above is the Product Warranty ("Product Warranty"). A unit of Product which
meets all of the standards of the Product Warranty shall be a Conforming Product
("Conforming Product"). Replaced Product shall be subject to the provisions of
this warranty to the same extent as the original Product except that the
warranty period shall run from its delivery date.
1.2.3 Year 2000 Warranty. MMC and Maxtor recognize that the Product does not
store, present, or make calculations based on dates. MMC will make its best
efforts to meet Maxtor's certification requirements which Maxtor applies to all
disk media vendors related to the year 2000.
1.2.4 Scope of Warranty. The above warranties shall be construed as
conditions as well as warranties and shall be cumulative.
1.2.5 Warranty Disclaimer. EXCEPT FOR THE WARRANTIES SET FORTH ABOVE, MMC
GRANTS NO WARRANTIES, EITHER EXPRESS OR IMPLIED, FOR THE PRODUCT, AND DISCLAIMS
ALL IMPLIED WARRANTIES
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SUPPLY AGREEMENT
INCLUDING WITHOUT LIMIT ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE.
1.3 REMEDIES.
1.3.1 Product Remedies. In the event that a Product is not a Conforming
Product as has been determined by Maxtor and MMC has had forty eight (48) hours
notice of such determination during which time MMC may take such actions as it
desires to confirm for itself Maxtor's determination, then Maxtor may elect to
have the Product replaced or to receive a full refund for the Product as
follows:
(i) [***].
(ii) [***].
(iii) Product which has been used or rejected shall not thereafter
be tendered for acceptance unless the former use or rejection is identified by
MMC in writing and Maxtor accepts such tender in writing.
(iv) MMC agrees to collect and send to Maxtor data on failure rates
and causes on monthly basis in a mutually agreed to format.
1.4 PRICES.
1.4.1 Product Price.
(A) The purchase price for Product paid to MMC by Maxtor shall be
determined as follows for each Maxtor program in each Maxtor fiscal quarter.
[***]. Both parties agree to negotiate pricing in good faith.
(D) Prices shall be reviewed for conformance to the above
requirements and any retroactive price changes shall be applied in the same
quarter in which the change occurs.
(E) It is understood and agreed that any cancelled or rejected
portion of an Order which is cancelled or rejected because of MMC's fault,
including without limit warranty, inspection, deliveries, shortages, [***].
(F) Special discounts and/or terms and conditions which may be
negotiated between Maxtor and other media suppliers from time to time [***].
(G) Maxtor agrees to work cooperatively with MMC in pursuing cost
reductions where appropriate. In the case of Maxtor initiated cost reductions
which are uniquely applicable to MMC, the benefits of such reductions will be
negotiated between the two parties with the primary beneficiary being Maxtor. In
the case of MMC initiated reductions, the benefits of such reductions will be
negotiated between the two parties with the primary beneficiary being MMC.
[***].
1.4.2 Terms of Sale. The terms of sale are as follows:
(i) For sales to Maxtor's research, engineering, qualification,
development, or NPI facilities, or in any case which is not Just in Time (JIT):
Title and risk of loss or damage to the Products passes from MMC to Maxtor at
Maxtor's dock. [***]. If the sale involves international shipment from MMC to
Maxtor, then the terms of sale are D.D.U. Maxtor's designated delivery location.
(ii) For sales to Maxtor's factory facilities under Just In Time
("JIT") terms: Title and risk of loss or damage passes from MMC to Maxtor at
Maxtor's dock. [***]. Terms of sale are D.D.U. Maxtor's designated delivery
location.
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SUPPLY AGREEMENT
ARTICLE II -- PROCEDURES
2.1 QUALIFICATION.
2.1.1 Qualification. The respective obligations of the parties pursuant to
this Agreement shall be subject to the successful qualification of MMC's Product
and its manufacturing process in Maxtor's HDD and with Maxtor's customers, as
Maxtor deems necessary. Maxtor and MMC shall cooperate to set up the necessary
processes and procedures to accomplish and facilitate such qualification.
Successful qualification means successful qualification with each specified
head. After Maxtor's approval or acceptance of the initial qualification
prototypes of the Products, MMC shall not make any changes in the Product design
or material according to the Specification, any processes documented in the
mutually agreed Process Management Plan; or in plant location.
2.1.2 Changes. MMC shall use its best efforts to promptly notify Maxtor in
writing of any change in Product design or material according to the
Specification; production process documented in the mutually agreed Process
Management Plan; or in plant location in order to allow it to requalify the
Product, before any Product is manufactured by the new design, material, process
or in the new location and sold to Maxtor. Failing such written notice and
requalification, MMC will be responsible for Maxtor's damages up to the cost of
the affected Product and any direct expense incurred for the rework of Maxtor's
HDD. Any Product delivered to Maxtor after such change and without
requalification may be rejected by Maxtor for a full refund.
2.2 TOOLING. Unless otherwise specified in this Agreement, all tooling
and/or all other articles required for MMC's performance under this Agreement
shall be furnished by MMC, maintained in good condition and replaced when
necessary [***]. If Maxtor agrees to pay MMC for special tooling or other items
either separately or as a stated part of the unit price of Products, title to
same shall be and remain in Maxtor upon payment, and the tooling shall be
treated as property of Maxtor, furnished by Maxtor to MMC.
2.3 [***], FORECASTS, AND ORDERS.
2.3.1 [***].
(A) Maxtor and MMC agree that this Agreement is made with the
contemplation that the [***] for supply and purchase of Product shall be:
(i) [***], and Maxtor shall use [***].
(F) Any cancelled or rejected portion of an Order which is
cancelled or rejected because of MMC's fault, including without limit warranty,
inspection, deliveries, shortages, or epidemic, shall be counted as purchased
[***].
(G) In the event that MMC fails to qualify with each head for a
particular Maxtor program on a timely basis, Maxtor may:
(i) [***]; and
(ii) [***].
(H) In the event that MMC [***], or for any [***], then Maxtor, in
its sole discretion, may:
(i) terminate this Agreement without any penalty or
payment whatsoever, and such termination shall not be a breach of this
Agreement; or
(ii) amend this Agreement to eliminate the [***].
2.3.2 Forecasts. During the term of this Agreement, Maxtor shall provide MMC,
on a monthly basis, with a four (4) quarter rolling forecast setting forth its
estimated Product needs and shall provide Orders for the first thirteen (13)
weeks of the forecast. Orders will be placed sixty (60) days in advance of the
date as of which the Products are to be delivered. Maxtor may request a shorter
lead time and MMC shall use its reasonable commercial efforts to meet such date.
Maxtor's forecast is provided solely for MMC's convenience and for its planning
purposes; no forecast shall be construed as an authorization by Maxtor to order
any materials for, or to allocate any labor or equipment for the manufacture of
the Product nor impose on MMC any obligation to supply additional Product.
Maxtor will not be responsible for any of MMC's cost or expense for materials,
Product, labor, or other commitments or expenses, other than as authorized in
Orders.
2.3.3 MMC's Capacity. MMC covenants to provide Maxtor with the [***] of new,
uncommitted Product production volume capacity and will consider in good faith
any request by Maxtor to amend its forecasts or Orders in light of such plans.
MMC will keep Maxtor informed of its plans for capacity expansion. In the event
MMC has other customers, MMC [***].
2.3.4 Maxtor's Forecast Allocation. Allocation of the forecast among Maxtor's
programs is solely at Maxtor's discretion and it is understood that Maxtor shall
have no duty under this Agreement to take or refrain from taking any action
which might, in Maxtor's judgment, substantially and adversely impact Maxtor's
relationships with or commitments to external media vendors or customers.
(i) If MMC fails to meet the requirements for any Maxtor program
at any time, the Product quantities allocated for that Maxtor program within the
forecast may be reduced or eliminated by Maxtor. [***].
(ii) If Maxtor forecasts increased Product needs for any particular
Maxtor program, Maxtor [***] functional requirements, including production ramp
and yield. In such case, Maxtor will notify MMC of any such
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SUPPLY AGREEMENT
resultant forecasted increased allocation and MMC will promptly notify Maxtor of
MMC's available capacity and commitment to supply such increase.
(iii) If Maxtor forecasts decreased Product needs for any particular
Maxtor program, [***].
2.3.5 Shortages. MMC agrees that in the event of a shortage of capacity or
material that will affect the supply of the Product, Maxtor's Order(s), subject
to normal lead-time requirements, shall be filled according to an allocation
plan [***]. MMC shall provide Maxtor with as much notice as possible if it
anticipates or has reason to believe that MMC's output of the Product will not
be sufficient to meet all of Maxtor's Product needs for any period.
2.4 ORDERS.
2.4.1 Orders. All purchases and sales shall be initiated by Maxtor's issuance
of written purchase orders sent via airmail, E-mail, facsimile, or courier
("Order"). Such Orders shall reference this Agreement and state the unit
quantities, unit descriptions, price, requested delivery dates and shipment
instructions. The acceptance by MMC of an Order shall be indicated by written
acknowledgment within three (3) work days. Maxtor will have the right to deem
its order as accepted by MMC if MMC's acknowledgment does not reach Maxtor
within ten (10) days from the date of the Order. By shipping the Products, or by
confirming or accepting an Order, or by performing the work described in an
Order, or by allowing an Order to be deemed accepted, MMC agrees to the Order
and to the terms and conditions of this Agreement. All Orders meeting the terms
and conditions of this Agreement shall be accepted by MMC.
2.4.2 Precedences. Any terms and conditions added or referenced by either
party in any purchase order, confirmation, acceptance or any similar document
purporting to modify the terms and conditions contained in this Agreement, shall
be disregarded unless expressly agreed upon in writing signed by the parties,
which expressly amends this Agreement. The preprinted terms and conditions of
purchase orders, acceptances, confirmations and similar business documents shall
have no effect as amendments of, objections to, or modifications of this
Agreement.
2.4.3 End of Life. MMC commits to supply Product to Maxtor for the duration
of the Maxtor HDD program for which the Product is qualified [***]. The last
purchase order date and the last shipment date for the Product for each program
shall be agreed to by the parties.
2.5 INSPECTION. Maxtor and MMC shall cooperate to inspect Products, and
nothing in this section shall limit Maxtor's other rights and remedies.
2.5.1 Inspection by Maxtor. Maxtor may test each lot or Order of Product to
ensure that the Products meet Maxtor's specifications and acceptance criteria,
and MMC shall not ship any Products that do not Conform. Product may be
inspected and tested by Maxtor or Maxtor's agent at all reasonable times and
places after manufacture and before or after shipment. In no event shall Maxtor
be liable for any reduction in value of samples used in connection with any
inspection or test. If any inspection or test is made on the MMC's premises, MMC
shall, without additional charge, provide reasonable facilities and assistance
for the safety and convenience of inspectors in such manner as not unduly to
delay the work. Inspection of Products at MMC's facility shall be without
prejudice to Maxtor's right to inspect and reject such Products upon delivery to
Maxtor's facility. Where applicable, Maxtor may, at its option, inspect all
Products or inspect a statistical sample selected from each lot, and Product,
lots or Orders may be inspected more than once.
2.5.2 Inspection by MMC. MMC will ensure that all Product are tested in
accordance with Maxtor's specifications and requirements, as may be amended from
time to time. MMC will provide only those Product conforming to Maxtor's
specifications and requirements, unless MMC has obtained prior written approval
from Maxtor for any deviation from such specifications. MMC further agrees to
maintain adequate authenticated inspection test documents that relate to work
performed under this Agreement. Such records shall be retained by MMC for a
period of two (2) years after Product shipment and made available to Maxtor upon
request. MMC agrees to supply Maxtor with inspection and test reports,
affidavits, certifications or any other documents as may be reasonably
requested.
2.5.3 In Case of Failure of Inspection. If the above inspection or testing
detects Products which do not conform to the specifications or the requirements
of this Agreement, Maxtor and MMC will closely cooperate to identify and find a
way to correct the causes of the problem(s). Maxtor may refuse to accept Product
which do not conform. Maxtor may reject entire lots if lot acceptance criteria
established in the specifications are not fulfilled. The rejected Product may,
at Maxtor's discretion, be returned to MMC and MMC may verify the
nonconformance. Maxtor will use its reasonable commercial efforts to assist MMC
in identifying and rectifying the cause(s) for rejection.
2.5.4 Stop Ship Order. Maxtor may stop future shipments of Product until the
cause(s) for non-conformity, as mutually determined by parties, have been
corrected. A stop ship order may be issued by Maxtor,
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without limiting its other rights and remedies, when [***] or the threshold
amount stated in the Specification, whichever is less, of the Product shall be
non-conforming [***] or more [***] of an Order or more, whichever occurs sooner.
In the event Maxtor issues a stop ship order, MMC must immediately cease
shipment of the Products, and all Orders which have been or would have been
filled by the nonconforming Product are terminated without liability to Maxtor
until such stop ship order is lifted and Maxtor retains all of its rights and
remedies under this Agreement. Maxtor will use commercially reasonable efforts
to work with MMC to determine the cause of the nonconformance problem and to
develop solutions.
2.6 SHIPPING. The following terms apply to all shipments, whether Just In
Time (JIT) or otherwise.
2.6.1 Carrier. MMC and Maxtor shall agree upon the common carrier.
2.6.2 Timeliness. MMC shall use its best efforts to meet a [***] on-time
delivery commitment. If MMC's performance falls below [***] on-time deliveries,
then MMC shall implement a corrective action plan acceptable to Maxtor which
brings the deliveries back to [***]. If MMC is unable to deliver any Product on
schedule, MMC shall promptly notify Maxtor giving a new delivery date, and
Maxtor may:
(i) accept the new delivery date; or
(ii) reschedule the delivery by means of a Change Order; or
(iii) cancel the delayed portion of the Order without liability, if
(i) and (ii) above are not commercially reasonable for Maxtor. At Maxtor's
request, MMC will provide Maxtor with daily notification of shipping delays or
of the progress of delayed Products in transit. Such notification will include
action plans to for recovery or expediting of the affected Product.
2.6.3 Shipping Documents. Either invoice or delivery order may be used when
making deliveries. Each set must contain three (3) copies. Each copy must
identify this Agreement, item number and description of Products, purchase order
number, and quantity of Products shipped. A complete packing list specifying
Maxtor's applicable purchase order number, quantity of Products shipped, and
part number shall be enclosed with all shipments under this Agreement. All
documents accompanying the Products shall reference the purchase order number.
2.6.4 Packing. Unless otherwise specified in writing, all Products are to be
packed and marked in accordance with Maxtor's specifications.
2.7 JUST IN TIME (JIT) DELIVERY. MMC shall maintain a buffer stock of
Products in a quantity and location to be agreed upon from time to time in
writing in order to provide Just In Time (JIT) delivery to Maxtor. All expenses
of maintaining the buffer stock shall be borne and covered by MMC, including
without limit the expense of establishing EDI and/or E-mail links as required by
Maxtor, unless otherwise expressly provided by this Agreement. A minimum of one
(1) week of buffer stock shall be maintained at the warehouse; one week of
buffer stock shall be determined as one fourth (") of the next four (4) weeks of
Product on Order, unless the parties shall agree to another level of buffer
stock in writing. All Product in the buffer stock shall have passed source
inspection by MMC, Maxtor, or both, before shipment to the warehouse. Maxtor
will, from time to time, typically daily, request deliveries from the buffer
stock in quantities that are even multiples of pallet loads by means of a pull
signal. Product in the buffer stock shall be deliverable to Maxtor within four
(4) hours after the pull signal, not to exceed six (6) hours.
2.8 ACCEPTANCE. If, after thirty (30) days from the date of receipt by
Maxtor, Maxtor has not rejected the Product, it will be deemed to have been
accepted by Maxtor. The act of inspection or payment by Maxtor for the Product
will not be construed as Maxtor's acceptance of any Product. Acceptance of any
Product shall not affect the warranty or any remedy provided hereunder.
2.9 RETURNS. Returns of product to MMC are at MMC's expense for shipping
for all returns which are caused by MMC's fault and for reasonable and customary
packing in the event of significant returns which are caused by MMC's fault,
including without limit warranty, inspection, and epidemics and are F.O.B.
Maxtor, and title and risk of loss pass to MMC upon delivery to the common
carrier at Maxtor's dock. MMC shall pay all expenses for shipment of replacement
Product, which are caused by MMC's fault, including without limit warranty,
inspection, and epidemics. Return shipments are F.O.B. Maxtor, and title and
risk of loss pass to MMC upon delivery to Maxtor's dock. If MMC requests, Maxtor
will apply MMC's Return Materials Authorization (RMA) or similar number to the
returned Products and/or related documentation, provided, however, that MMC must
supply such RMA number to Maxtor on a timely basis.
2.10 EPIDEMICS. Epidemic or sweeping failures of Product may be detected
directly or by virtue of failures of Maxtor's HDDs, and the procedures and
remedies for epidemics are in addition to all other of Maxtor's rights and
remedies available under this Agreement. An epidemic failure shall occur when
[***] of Maxtor's HDD delivered to one or more customers shall fail within six
(6) months of delivery for reasons Maxtor determines to be related to Product
and which the parties
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have discussed. In the event that the Maxtor's HDDs should develop any epidemic
failure related to MMC's Product, the parties will meet in order to work out
technical methods to diagnose and remedy the problem. In such event, shipment of
undelivered Products related to the epidemic may be postponed, at Maxtor's
request, until the cause of the epidemic has been corrected. In case upon the
expiration of 30 (thirty) days from the date of Maxtor's notice regarding the
epidemic, MMC has not yet remedied the same, then Maxtor shall be entitled to
cancel pending Orders without any liability for such cancellation and without
prejudice to Maxtor's rights for damages or any other remedy. In the event that
a remedy has been found, all Product units subsequently delivered to Maxtor
shall incorporate the modification remedying the defect, if necessary, and MMC
shall be obliged to accept return of all Product units previously delivered to
Maxtor, affected by such epidemic. In the event Maxtor can show that the
epidemic is due to the failure of the Product, MMC will refund the cost of the
Product and any direct expense incurred for the rework of Maxtor's HDD.
2.11 INVOICING. MMC will issue the invoices for the Products and will date
them with a date equal or subsequent to date of delivery to Maxtor's dock.
Invoices shall reference this Agreement, purchase order number, item number and
description of Products, unit price of Products, and total amounts due.
2.12 PAYMENT.
2.12.1 Terms Invoices shall be due and payable within [***] after the date of
invoice. In cases where an invoice is not issued, payment shall be due within
[***] after the delivery of the Product. Such [***] period shall be subject to
review and good faith negotiation by the parties on a quarterly basis. Maxtor's
payment advice shall reference MMC's invoice number(s) and date(s).
2.12.2 Currency. Unless expressly provided to the contrary, all amounts stated
in this Agreement and all sums payable under this Agreement shall be denominated
in United States Dollars and all payments made under this Agreement shall be
made by wire transfer, cashier's check, or other ready funds in United States
Dollars to payee's designated account and bank.
2.12.3 Disputes. Maxtor shall have forty five (45) days after the invoice date
to contest in good faith the amounts and items charged. If the dispute is
resolved prior to fifteen (15) days before the original due date, payment shall
be due on the original due date. If the dispute is resolved thereafter, payment
is due fifteen (15) days after the resolution of the dispute.
2.12.4 Bills. MMC's bills shall list all open invoices, invoice dates, and
amounts unpaid; payments received, and credits issued.
2.12.5 Payment Applications. Payments shall be applied to open invoices
according to Maxtor's payment advice, but, in the event the payment advice does
not specify invoices, then payments shall be applied to oldest items first.
2.12.6 Payment Assurance. Maxtor Corporation undertakes to pay any undisputed
amount which is past due to MMC from Maxtor Peripherals (S) Pte Ltd under this
Agreement.
2.13 ORDER CHANGES. No Order shall be deemed or construed to be modified,
amended, rescinded, canceled, or waived in whole or in part, except by a written
Change Order signed by a representative of each party.
2.13.1 Changes. MMC grants to Maxtor, subject to MMC's plant constraints, the
right to make changes to the Product mix or schedule one or more times without
penalty, provided that the overall volume of the Order is not changed. MMC must
respond within two (2) working days. If any such change causes an increase or
decrease in the cost of, or the time required for performance of, any part of
the work on an Order or affects any other provisions, an equitable adjustment
shall be made in the price or delivery schedule, or both, and in such other
provisions as may be affected. It is understood that market conditions or
requirements by Maxtor's customers may require changes in the Product mix one or
more times and it is anticipated that such changes may occur frequently. Any
claim by MMC for adjustment under this clause must be asserted in writing within
thirty (30) days of MMC's receipt of the Change Order. Where the cost of any
property made obsolete or surplus as a result of a change is included in MMC's
claim for such adjustment, Maxtor shall have the right to prescribe the manner
of disposition of such property once the claim payment has been made. If
Maxtor's Change Order is an acceleration or increase, MMC will use its
reasonable commercial efforts to meet the requested quantities and/or delivery
dates.
2.13.2 Cancellation. Maxtor may cancel Order(s) for any commercially
reasonable cause by notifying MMC in writing. MMC will cease work on the
affected Order in accordance with such notice. Maxtor will
(i) purchase and pay for any units of Product that have been
completed as of the effective date of the cancellation;
(ii) will pay MMC the actual overhead, labor and materials costs
incurred by MMC in connection with the Production of any Products that are
partially completed as of the effective date of cancellation up to the total
purchase price under the canceled order(s);
(iii) pay the costs of components and other materials procured by
MMC specifically on account of the canceled order(s), and receive title to such
items;
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(iv) pay the costs of components and other materials, including
without limit tools, dies, jigs, fixtures, plans, drawings, information and
manufacturing materials specifically produced or acquired for performance of
this Agreement and receive title to such items; and
(v) pay any cancellation or restocking charges imposed by vendors
on account of any canceled orders pursuant to clauses (iii) and (iv) above.
Provided, however, that the aggregate of such payments shall not exceed the
amounts originally due under the Order. MMC will use its reasonable commercial
efforts to return components and other materials to its vendors and/or use them
in other activities at MMC. MMC will in any event use its reasonable commercial
efforts to mitigate the cancellation charges under this Agreement.
2.14 ENGINEERING CHANGES. MMC shall not make any changes to the Product or
any process by which they are produced except as set forth in this section.
2.14.1 Definition. Engineering change(s) are those changes in Product design
or material according to the Specification or production process documented in
the mutually agreed Process Management Plan. Any Product which is subject to an
engineering change must be requalified unless otherwise provided by Maxtor in
writing.
2.14.2 MMC Change(s). MMC will notify Maxtor of any engineering change
proposed to be made by MMC to the Products or any process by which they are
produced, and will supply a written description of the expected effect of the
engineering change on the Products, including its effect on the form, fit,
function, schedule, price, performance, and reliability of the Products. Maxtor
may elect to evaluate the prototype, parts and/or designs specified as part of
the proposed change and MMC shall provide the prototype, parts and/or design to
Maxtor at no charge for such evaluation. Maxtor agrees to make every effort to
approve or disapprove MMC's proposed changes within five (5) working days after
receipt of MMC request for non-critical changes, and within twenty-four (24)
hours for critical changes. MMC will not change or modify the Products or any
process by which they are produced by implementation of such engineering change
without Maxtor's prior written approval.
2.14.3 Maxtor Change(s). Maxtor may request, in writing and in a manner
similar to MMC's request, that MMC incorporate any non-critical engineering
change into the Products, and MMC will provide to Maxtor its written response
within five (5) working days after receipt of Maxtor's request. For critical
engineering changes, as determined by Maxtor, MMC will respond within
twenty-four (24) hours of Maxtor's written request. MMC's response will state
the cost savings or increase, if any, expected to be created by the engineering
change, and the effect on the schedule and price of the Products. If Maxtor
requests MMC to incorporate an engineering change into the Products, the
applicable Specifications will be amended as required. MMC will not unreasonably
refuse to incorporate Maxtor's engineering changes into the Products. In the
event any Maxtor required engineering change directly causes a negative
financial impact to MMC due to incorporation of such change into a Product, the
parties agree to promptly meet to discuss fair compensation for such financial
impact. MMC agrees to use its best efforts to notify Maxtor of such financial
impact prior to incorporation of such engineering change, and in any event,
notify Maxtor as soon as MMC becomes aware of such impact. Maxtor will determine
whether the Product must be requalified in whole or in part as a result of any
engineering change.
2.15 WORKING RELATIONSHIP.
(A) Executives of Maxtor and MMC will meet monthly or as the
parties may agree to review current and future plans and activities. Agendas
will include product and technology roadmapping, development and qualification
schedules, capacity planning, yield performance, cost targets, volumes, plans,
quality and delivery performance, and other topics related to Maxtor and the
Products.
(B) MMC agrees to work collaboratively with Maxtor Advanced
Development teams on issues related to MMC's new Product development and
Maxtor's hard disk drive development.
(C) The lead engineers of each party shall agree upon time tables,
contents, and procedures for Product and technology disclosures, at least
quarterly.
(D) MMC shall sample all new Product or other examples of
development, including without limit all new technologies, techniques, or
processes, to Maxtor on a most favored basis, in advance of all other customers.
(E) If Maxtor requests, MMC will provide dedicated application
engineers to support Maxtor.
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ARTICLE III -- INTELLECTUAL PROPERTY
3.1 CONFIDENTIALITY.
3.1.1 Confidential Information. The parties have previously executed that
certain "Mutual Nondisclosure Agreement" dated January 19, 1998, which agreement
is hereby integrated herein and made a part hereof.
3.1.2 Items Declared Confidential. This Agreement, its terms and conditions,
Maxtor's specifications, and all Orders are Confidential Information as the term
is defined under the "Mutual Nondisclosure Agreement" dated January 19, 1998.
3.2 PUBLICITY. Neither party shall publicly announce or disclose the
existence of this Agreement or its terms and conditions, or advertise or release
any publicity or press release regarding this Agreement, without the prior
written consent of the other party. Nothing in this Agreement shall limit a
party from making such disclosures as are required by law or court order,
provided notice of such disclosures is given to the other party.
3.3 LICENSES.
3.3.1 License for Ordinary Use. MMC agrees that Maxtor is licensed to use the
intellectual property rights to the Products, including rights in patents,
trademarks, trade names, inventions, copyrights, know-how or trade secrets, now
in existence or hereafter developed or acquired, only for the purposes set forth
in this Agreement or reasonably expected in consideration of the premises of
this Agreement, and upon termination of this Agreement for any reason such
authorization shall cease, except for use licenses to Maxtor and Maxtor's
customers inherent in the manufacture, marketing, sale, use, import, export, and
servicing of the HDDs.
3.3.2 No Other Licenses. Except as expressly set forth in this Agreement,
nothing contained in this Agreement shall be deemed to grant, either directly or
by implication, estoppel or otherwise, any license on the patents, patent
applications, copyrights or proprietary information arising out of any other
inventions of either party.
3.4 ASSIGNMENT OF RIGHTS.
3.4.1 Inventions. As used in this Agreement, "Invention" shall mean any idea,
design, concept, technique, discovery, enhancement, modification, or
improvement, whether or not patentable, conceived, or reduced to practice during
the term of this Agreement by one or more employees of MMC or Maxtor
independently of the other ("Inventing Party"), or jointly by one or more
employees of Maxtor and MMC, or their subcontractors, ("Joint Invention") in
conjunction with or as a result of work done under this Agreement.
3.4.2 Ownership. For Inventions made by one party to the other party's
technology, and for Joint Inventions made by jointly by parties to one party's
technology, such Inventions and Joint Inventions shall be jointly owned by the
parties including ownership to all patents that may issue and all copyrights.
The Inventing Party shall promptly inform the other party of such Invention. The
parties agree that for such Inventions and Joint Inventions, each party may
exercise all rights available as an owner of such Inventions and Joint
Inventions for any lawful purpose without accounting to the other party,
provided, and notwithstanding the above, neither party shall be able to
exclusively license any jointly owned Invention or Joint Invention.
If MMC made the Inventions to Maxtor technology or if the Joint
Invention was made to Maxtor technology, MMC agrees that it may not use, nor
allow others to use such Invention or Joint Invention for any purpose(s), which
compete, at any time, with Maxtor's business interests, and MMC further agrees
that its joint ownership of such Inventions and such Joint Inventions does not
grant or bestow on MMC expressly, by implication or otherwise, any license to
use Maxtor technology which is encompassed or embodied in such Inventions or
Joint Inventions, and MMC may only use such Maxtor technology as permitted in
this Agreement unless otherwise agreed in by Maxtor.
Inventions made by one party to its technology shall be the sole
property of such Inventing Party, shall be deemed confidential information of
such Inventing Party and treated in accordance with the terms of this Agreement,
and the other party is hereby granted by the Inventing Party the same rights
such party is granted under this Agreement to use the technology of such
Inventing Party.
Joint Inventions made by the parties to other than the technology of a
particular party, shall be jointly owned including ownership to all patents that
may issue and all copyrights. The parties agree that for such Joint Inventions,
each party may exercise all rights available as an owner of such Joint
Invention, for any lawful purpose without accounting to the other party. The
parties further agree that all expenses associated with protecting each such
Joint Invention, e.g., patent protection or the like, shall be shared equally;
however, if one party elects not to share equally in such expenses, the other
party shall have the right to seek or maintain such protection at its own
expense and shall have full control over the prosecution and maintenance of such
patents, even though ownership of any patent or copyright and any rights granted
or allowed under such patents or copyrights shall, in all cases, remain jointly
owned with the other party.
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ARTICLE IV -- LIABILITIES
4.1 GENERAL INDEMNITY. Each party shall, in the performance of this
Agreement, fully comply with all applicable national, state, and local laws,
rules, regulations, and ordinances and shall indemnify and hold harmless the
other party from and against any loss, claim, damage, liability, expense, or
cost (including without limitation attorney's fees and court costs) resulting
from failure of such compliance, or out of any other negligence.
4.2 INFRINGEMENT INDEMNITY. Unless an infringement arises exclusively from
a design that is proprietary to a party and provided by such party, the other
party shall, at its expense, hold harmless and defend such party, its customers,
and all persons claiming under such party against any suit or suits for the
infringement of any patent, trade secret, copyright, trademark, or other
intellectual property right of a third person and shall indemnify such party and
its customers against all damages, claims, losses, liabilities, costs and
expense of any kind or nature (including without limitation attorney's fees and
court costs) arising from such claims by reason of the manufacture, sale, or
normal and intended use of the Products covered by this Agreement; provided,
however, that:
(i) The indemnifying party shall have the right to control the
defense and settlement of all such actions or claims;
(ii) The indemnified party agrees to take all lawful actions that
may be reasonably requested by the indemnifying party in connection with such
settlement or defense at the expense of the indemnifying party; and
(iii) The indemnified party promptly notifies the indemnifying party
in writing of such claim. Should the use by the indemnified party or its
customers of any of the Products be enjoined, or in the event the indemnifying
party desires to minimize its liabilities under this Agreement, the indemnifying
party may, at its option, either:
(i) Substitute a fully equivalent non-infringing Product;
(ii) Modify the infringing Product so that it no longer
infringes but remains functionally equivalent; or
(iii) Obtain for the indemnified party of its customers, at
the indemnifying party's expense, the right to continue use of such
Product.
If none of the above is feasible, the indemnified party may, require that the
indemnifying party take back such infringing Product and refund the purchase
price.
4.3 STRICT LIABILITY. Each party will indemnify the other against and hold
it harmless from any loss, cost, liability or expense (including court costs and
reasonable fees of attorneys and other professionals) to the extent it arises
out of or in connection with, in whole or in part, any negligence or willful act
or omission of it or its employees or agents including but not limited to any
such act or omission that contributes to:
(i) any bodily injury, sickness, disease or death; or
(ii) any injury or destruction to tangible or intangible property
of the other or any related loss of use.
4.4 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
ANY SPECIAL, CONSEQUENTIAL, PUNITIVE, INDIRECT, OR INCIDENTAL DAMAGES, HOWEVER
CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING IN ANY WAY OUT OF THIS
AGREEMENT OR ANY AGREEMENT, UNDERTAKING, OR PERFORMANCE THAT MAY BE PROMISED,
PERFORMED, OR EXECUTED TO IMPLEMENT THIS AGREEMENT, PROVIDED, HOWEVER, THAT THIS
LIMITATION SHALL NOT APPLY TO EITHER THE INDEMNITY OBLIGATIONS OF THIS ARTICLE
OR TO A BREACH OF THE CONFIDENTIALITY OBLIGATIONS OF THIS AGREEMENT.
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ARTICLE V -- DISPUTE RESOLUTION
5.1 ESCALATION. The parties agree that any material dispute between the
parties relating to this Agreement will be submitted to a panel of two senior
executives of each of Maxtor and MMC. Either party may initiate this proceeding
by notifying the other party pursuant to the notice provisions of this
Agreement. Within five (5) days from the date of receipt of the notice, the
parties' executives shall confer (via telephone or in person) in an effort to
resolve such dispute. The decision of the executives will be final and binding
on the parties. In the event the executives are unable to resolve such dispute
within twenty (20) days after submission to them, such dispute shall be settled
by means of arbitration as provided below. Each party's executives shall be
identified by notice to the other party, and may be changed at any time by
notice.
5.2 ARBITRATION.
5.2.1 Binding Arbitration. Any controversy, claim, or action, whether in law
or at equity, whether in tort, contract, warranty, or otherwise, arising out of,
relating to, or involving this Agreement and any agreement, undertaking, or
performance that may be promised, performed, or executed to implement this
Agreement will be settled by arbitration as follows:
(i) Any arbitration proceeding shall be conducted under the laws
of the state of California and the Federal Arbitration Act, and pursuant to the
Commercial Arbitration Rules of the American Arbitration Association insofar as
such Commercial Arbitration Rules do not conflict with the provisions of this
Section.
(ii) Either party may initiate arbitration by giving notice to the
other stating an intention to arbitrate, the issue to be arbitrated, and the
relief sought. The site for any arbitration proceeding shall be San Jose,
California.
(iii) The arbitrators shall promptly, by majority vote, make such
award and determination as is appropriate and in accordance with the terms of
this Agreement. The parties will faithfully abide by and perform any award
rendered by the arbitrators. Further, any such award and determination shall be
final and binding upon the parties and enforceable in any court of competent
jurisdiction.
5.2.2 Injunctive Relief. Notwithstanding the above, the parties may apply to
any court of competent jurisdiction for injunctive relief without breach of this
arbitration provision.
5.2.3 Governing Language. The arbitration proceedings and all pleadings and
written evidence shall be in the English language. Any written evidence
originally in a language other than English shall be submitted in English
translation accompanied by the original or a true copy.
5.3 CHOICE OF LAW.
5.3.1 Choice of Law. This Agreement and any agreement, undertaking, or
performance that may be promised, performed, or executed to implement this
Agreement shall be governed by and construed under the laws of the State of
California, as they apply to agreements made between residents of California for
performance solely within California. The parties expressly agree that this
Agreement and any agreement, undertaking, or performance that may be promised,
performed, or executed to implement this Agreement shall not be subject to and
shall not be interpreted by the United Nations Convention on Contracts for the
International Sale of Goods.
5.3.2 Foreign Corrupt Practices Act. Maxtor is subject to the laws and
regulations of the United States including the Foreign Corrupt Practices Act
("FCPA"). MMC shall not use any payment or other benefit derived from Maxtor to
offer, promise or pay any money, gift or any other thing of value to any person
for the purpose of influencing official actions or decisions affecting this
Agreement or with the intention of obtaining or maintaining any business related
to Maxtor, while knowing or having reason to know that any portion of this
money, gift or thing will, directly or indirectly, be given, offered or promised
to:
(i). An employee, officer or other person acting in an official
capacity for any government or its instrumentalities; or
(ii) Any political party, party official or candidate for political
office. Further, MMC shall maintain books, records, and systems of accounting
and control adequate to insure that MMC's assets and operations are accounted
for and that MMC's business is carried out according to the directions of MMC's
managers.
5.3.4 Export Controls. Maxtor agrees that it will not knowingly export or
re-export, directly or indirectly, any Product to any destination to which such
export or re-export is restricted or prohibited by U.S. law, without obtaining
prior authorization from the U.S. Department of Commerce.
5.4 LIMIT OF TIME TO BRING ACTION. No actions or arbitrations, regardless
of form, arising out of this Agreement, may be brought by either party more than
one (1) year after such actions or arbitrations arose, or in the case of
nonpayment, more than one (1) year from the date the last payment was due.
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ARTICLE VI -- GENERAL
6.1 TERM AND TERMINATION.
6.1.1 Term. This Agreement shall become effective on the Effective Date and
shall remain in force until the Termination Date, and on and effective the
Termination Date this Agreement shall terminate.
6.1.2 Renewal. The parties may agree in writing to extend this Agreement for
one or more terms of one (1) year.
6.1.3 Termination. This Agreement shall be terminated for cause:
(i) If either party materially defaults in the performance of any
provision of this Agreement, then the non-defaulting party may give written
notice to the defaulting party that if the default is not cured within thirty
(30) calendar days, the Agreement will be terminated at the end of that period
and such termination shall not prejudice or limit either party's remedies; or
(ii) If either party violates any intellectual property,
confidentiality, or license provision of this Agreement, then the non-defaulting
party may give written notice to the defaulting party of such violation and of
immediate termination and the Agreement will be terminated when such notice is
given and such termination shall not prejudice or limit either party's remedies;
or
(iii) Upon:
(a) the institution by or against either party of
insolvency, receivership or bankruptcy proceedings or any other
proceedings for the settlement of its debts; or
(b) either party's making an assignment for the benefit
of creditors; or
(c) either party's dissolution, this Agreement shall
terminate immediately without notice and shall be deemed to have been
terminated by the party not so affected and such termination shall not
prejudice or limit either party's remedies.
6.1.4 Duties Upon Termination. Upon any termination or expiration of this
Agreement:
(i) all licenses made to MMC under this Agreement shall be
terminated according to their terms effective the date of the termination or
expiration;
(ii) all trademarks, patents, designs, drawings, formulas or other
data, photographs, samples, literature, and sales aids of every kind received
from or belonging to Maxtor shall remain the property of Maxtor, and MMC shall
prepare all such items in its possession with reasonable promptness for shipment
to Maxtor at Maxtor's expense;
(iii) neither party shall be liable to the other because of such
termination for compensation, reimbursement or damages on account of the loss of
prospective profits or anticipated sales or on account of expenditures,
investments, leases or commitments in connection with the business or good will
of Maxtor or MMC, or for any other reason growing out of such termination; and
(iv) any Orders placed before such expiration or termination shall
be completed according to the terms of this Agreement.
6.1.5 Survival. The terms of this Agreement which by their nature may survive
the termination or expiration of this Agreement shall survive the termination or
expiration of this Agreement.
6.2 GENERAL.
6.2.1 Assignment. MMC shall not transfer or assign its rights under this
Agreement directly or indirectly including without limit in the cases of merger,
acquisition of greater then [***] ownership or control interest in MMC by any
party, or sale of MMC's assets, without the prior written consent of Maxtor,
which consent shall be granted, so long as Maxtor is satisfied that any such
assignment, merger, acquisition, or change of ownership or control shall result
in a commitment and capacity to continue MMC's management, technology,
operations, and financing, and meet MMC's commitments to Maxtor.
Further, in the event MMC or its assets are [***], Maxtor has the right
to terminate this Agreement without penalty or payment of any sort or to seek
such contractual terms, conditions, or assurances as it may deem necessary.
However, notwithstanding the foregoing, any Order shall not be cancelled or
reduced by either party.
[***]. However, notwithstanding the foregoing, any Order shall not be
cancelled or reduced by either party.
[***].
Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns. Any purported
assignment of this Agreement by MMC without the prior written consent of Maxtor
shall be void.
6.2.2 Audit. Maxtor shall have the right, by itself or by a mutually
acceptable third person auditor, to examine and audit MMC's records related to
its performances hereunder at any time during normal business hours upon three
(3) days notice to MMC to ensure compliance with this Agreement. MMC shall
maintain its records relating to this Agreement for seven (7) years.
6.2.3 Consents. No consent required to be given under this Agreement shall be
unreasonably withheld or delayed.
6.2.4 Counterparts. This Agreement shall be prepared in two identical and
original counterparts and
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<PAGE> 14
SUPPLY AGREEMENT
both of which together shall be one and the same instrument and either of which
may be used for purposes of proof.
6.2.5 Cumulation of Remedies. All remedies available to either party under
this Agreement are cumulative and may be exercised concurrently or separately,
and the exercise of any one remedy shall not be deemed an election of such
remedy to the exclusion of other remedies.
6.2.6 Independent Parties. Persons furnished by each party shall be solely
the employees or agent of such party and shall be under the sole and exclusive
direction and control of the furnishing party. They shall not be considered
employees of the other party for any purpose. Each party shall remain an
independent contractor and shall be responsible for compliance with all laws,
rules and regulations involving, but not limited to, employment of labor, hours
of labor, health and safety, working conditions and payment of wages. Each party
shall also be solely responsible for payment of taxes, including federal, state
and municipal taxes, chargeable or assessed with respect to its employees, such
as social security, unemployment, worker's compensation, liability insurance and
federal and state withholding. Each party shall indemnify the other for any
loss, damage, liability, claim, demand or penalty including costs, expenses, and
reasonable attorneys' fees assessed against one party that may be sustained by
reasons of the other party's failure to comply with the provisions of this
Section. Neither party nor its employees, officers, directors, or agents shall
hold itself out as the agent, employee, partner, or joint venturer of the other
party, and shall make no commitment or engagement on the account of or on behalf
of the other party.
6.2.7 Force Majeure. Nonperformance of either party shall be excused to the
extent that performance is rendered impossible by strike, fire, flood,
governmental acts, orders or restrictions, or any other reason where failure to
perform is beyond the control and not caused by the negligence of the
nonperforming party. In the event of any delay caused by such contingency, the
delayed party may defer any performance or delivery prevented by the force
majeure condition for a period equal to the time lost by reason of such delay,
provided, however, that the delayed party promptly commences and reasonably and
diligently pursues actions to cure or circumvent such cause. Whenever any cause
delays or threatens to delay the timely performance of this Agreement, MMC shall
immediately notify Maxtor of all relevant information with respect to such
cause. If MMC is delayed in any performance or delivery by more than thirty (30)
days, Maxtor may terminate the delayed performance or delivery or this Agreement
and such termination shall not be a breach of this Agreement and shall be
without penalty.
6.2.8 Governing Language. English shall be the language of this Agreement and
the English language shall govern all disputes, performance and interpretations.
6.2.9 Headings. The descriptive headings of the several Articles and Sections
of this Agreement are inserted for convenience only and do not constitute a part
of this Agreement and shall not affect the interpretation of this Agreement.
6.2.10. Joint Work Product. The parties further acknowledge that they have
thoroughly reviewed this Agreement and bargained over its terms and that for
convenience, Maxtor has written down the terms of this Agreement. Accordingly,
this Agreement shall be construed without regard to the party or parties
responsible for its preparation and shall be deemed to have been prepared
jointly by the parties.
6.2.11 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to be sufficiently given if
delivered by hand or if sent by courier with a receipt requested or by
registered air mail, postage prepaid, addressed to Maxtor or to MMC, as the case
may be, at the addresses first set forth above or to such other address as may
be furnished for such purpose by notice duly given under this Agreement. Such
notice shall be deemed to have been given when delivered by hand or two (2) days
after deposit with the courier or mail service. Any party may change its address
for such communications by giving such notice to the other party in conformance
with this section.
6.2.12 Severance. If any provision of this Agreement is held to be invalid by
a court of competent jurisdiction, then the remaining provisions shall
nevertheless remain in full force and effect. The parties agree to renegotiate
any term held invalid and to be bound by the mutually agreed substitute
provisions.
6.2.13 Time. Time is of the essence in all performances hereunder. The words
day, month, quarter, year, and the like shall mean calendar day, month, quarter,
year, and the like, unless expressly provided to the contrary.
6.2.14 Waiver. The failure of any party to this Agreement at any time or times
to require performance of any provision of this Agreement shall in no manner
affect such party's available remedies or right at a later time to enforce the
same. No waiver by any party of any condition, or of the breach of any term,
covenant, representation or warranty contained in this Agreement, whether by
conduct or otherwise (in any one or more instances) shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
of any remedy or as a waiver of any other condition or as a
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<PAGE> 15
SUPPLY AGREEMENT
breach of any other term, covenant, representation or warranty of this
Agreement.
6.3 ENTIRE AGREEMENT. The terms and conditions of this Agreement are the
entire agreement between the parties and supersede all previous agreements,
proposals, and understandings, whether oral or written, between the parties with
respect to the subject matter of this Agreement and no agreement or
understanding varying or extending the same shall be binding upon either party
unless in a written document signed by both parties. This Agreement shall
supersede all inconsistent or additional terms contained in any purchase orders,
sale acknowledgments, invoices, or other similar documents delivered by the
parties.
6.4 ELECTRONIC EXECUTION. To expedite the process of entering into this
Agreement, the parties acknowledge that Transmitted Copies of this Agreement
shall be equivalent to original documents until such time as original documents
are completely executed, produced, and delivered, and in the event of the use of
Transmitted Copies, each party shall use its best efforts, at its own expense,
to execute, produce, and deliver original copies. "Transmitted Copies" shall
mean copies which are reproduced or transmitted via photocopy, facsimile, or
other process of complete and accurate reproduction and transmission.
THIS AGREEMENT REQUIRES THAT DISPUTES BE SETTLED BY BINDING ARBITRATION.
In witness whereof, the parties have executed this Agreement as of the Effective
Date.
MAXTOR CORPORATION MMC TECHNOLOGY, INC.
By: /s/ David Beaver 8/24/98 By: /s/ N. Pignati 8/20/98
------------------------------- ----------------------------------
(signature) (signature)
David Beaver Nicola Pignati
- ---------------------------------- ----------------------------------
(print name) (print name)
Vice President WorldWide Materials President
- ---------------------------------- ----------------------------------
(title) (title)
[***] CONFIDENTIAL TREATMENT REQUESTED - EDITED COPY
15
<PAGE> 1
EXHIBIT 10.168
- --------------------------------------------------------------------------------
PURCHASE AND SALE AGREEMENT
among
MAXTOR CORPORATION,
as an Originator and initial Servicer,
CERTAIN SUBSIDIARIES OF MAXTOR CORPORATION
THAT MAY BECOME PARTY HERETO,
as Originators
and
MAXTOR RECEIVABLES CORPORATION,
as the Initial Purchaser
Dated as of July 31, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASES .............................4
SECTION 1.1. Agreement to Purchase and Sell..................................4
SECTION 1.2. Timing of Purchases.............................................5
SECTION 1.3. No Recourse.....................................................5
SECTION 1.4. True Sales......................................................6
SECTION 1.5. Consideration for Purchases.....................................6
SECTION 1.6. Initial Purchaser Agreement to Make Demand Loans ...............6
SECTION 1.7. Addition of Originators.........................................7
ARTICLE II
CALCULATION OF PURCHASE PRICE 7
SECTION 2.1. Calculation of Purchase Price...................................7
ARTICLE III
PAYMENT OF PURCHASE PRICE ......................................9
SECTION 3.1. The Initial Purchase Price Payment..............................9
SECTION 3.2. Purchase Price Payments........................................10
SECTION 3.3. Deemed Collections, Etc........................................11
SECTION 3.4. Payments and Computations, Etc.................................12
ARTICLE IV
CONDITIONS TO PURCHASES .......................................12
SECTION 4.1. Conditions Precedent to Initial Purchase.......................12
SECTION 4.2. Conditions Precedent to All Purchases..........................14
SECTION 4.3. Certification as to Representations and Warranties. ...........14
SECTION 4.4. Effect of Payment of Purchase Price............................14
ARTICLE V
REPRESENTATIONS AND WARRANTIES ................................15
SECTION 5.1. Representations and Warranties.................................15
ARTICLE VI
COVENANTS .....................................................18
SECTION 6.1. Affirmative Covenants..........................................18
SECTION 6.2. Negative Covenants.............................................19
SECTION 6.3. Separate Existence.............................................20
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VII
INDEMNIFICATION................................................20
SECTION 7.1. Indemnities by the Originators.................................20
SECTION 7.2. Contribution...................................................22
SECTION 7.3. After-Tax Basis................................................23
ARTICLE VIII
ADMINISTRATION AND COLLECTIONS; ADDITIONAL RIGHTS AND
OBLIGATIONS IN RESPECT OF THE POOL RECEIVABLES.................23
SECTION 8.1. Servicing of Pool Receivables and Related Rights. .............23
SECTION 8.2. Rights of the Initial Purchaser; Enforcement Rights. ..........23
SECTION 8.3. Responsibilities of the Originator.............................24
SECTION 8.4. Further Action Evidencing Purchases............................25
ARTICLE IX
MISCELLANEOUS .................................................26
SECTION 9.1. Amendments, Etc................................................26
SECTION 9.2. Notices, Etc...................................................26
SECTION 9.3. Acknowledgment and Consent.....................................26
SECTION 9.4. Binding Effect; Assignability..................................27
SECTION 9.5. Costs, Expenses and Taxes......................................28
SECTION 9.6. No Proceedings; Limitation on Payments.........................28
SECTION 9.7. GOVERNING LAW AND JURISDICTION.................................28
SECTION 9.8. Execution in Counterparts......................................29
SECTION 9.9. Survival of Termination........................................29
SECTION 9.10. WAIVER OF JURY TRIAL...........................................29
SECTION 9.11. Entire Agreement...............................................29
SECTION 9.12. Headings.......................................................30
</TABLE>
(ii)
<PAGE> 4
SCHEDULE I LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS
SCHEDULE 9.2 ADDRESSES
EXHIBIT A FORM OF PURCHASE REPORT
EXHIBIT B FORM OF INITIAL PURCHASER NOTE
EXHIBIT C FORM OF ORIGINATOR NOTE
(iii)
<PAGE> 5
PURCHASE AND SALE AGREEMENT
This PURCHASE AND SALE AGREEMENT (as amended, supplemented or otherwise
modified from time to time, this "Agreement") is entered into as of July 31,
1998, between MAXTOR CORPORATION, a Delaware corporation ("Maxtor" or, together
with the other Persons who may become parties hereto pursuant to Section 1.7, an
"Originator"), as seller and as initial Servicer, and MAXTOR RECEIVABLES
CORPORATION, a California corporation, as initial purchaser (the "Initial
Purchaser").
DEFINITIONS
Unless otherwise defined herein or the context otherwise requires,
certain terms that are used throughout this Agreement (including the Exhibits
hereto) are defined in Appendix A to the Receivables Purchase Agreement, dated
as of even date herewith, among the Initial Purchaser, as Seller, Maxtor, as the
initial Servicer, Blue Keel Funding, LLC, as Purchaser, and Fleet National Bank,
as Administrator (as the same may be amended, modified or supplemented from time
to time, the "Receivables Purchase Agreement"). Any reference to "this
Agreement" or "the Purchase and Sale Agreement", including any such reference in
any Exhibit hereto, shall mean this Agreement in its entirety, including the
Exhibits and other attachments hereto, as amended, modified or supplemented from
time to time in accordance with the terms hereof.
Available Funds shall have the meaning assigned to such term in Section
3.2(a) hereof.
Contributed Receivables shall have the meaning assigned to such term in
Section 1.2(b) hereof.
Cost Discount shall have the meaning assigned to such term in Section
2.1 hereof.
Cost Rate shall have the meaning assigned to such term in Section 2.1
hereof.
Deemed Collection means amounts payable by an Originator pursuant to
Section 3.3.
Earned Discount Rate Percentage shall be equal to a fraction (expressed
as a percentage) (x) the numerator of which is the sum of the products obtained
by multiplying (A) each Earned Discount Rate applicable to any portion of the
Asset Interest as of the first day of such Settlement Period, times (B) the
amount of the Capital (or portion thereof) to which such Earned Discount Rate
applied on such first day, and (y) the denominator of which is the Capital on
such first day.
Fair Market Value Discount Factor shall have the meaning assigned to
such term in Section 2.1 hereof.
<PAGE> 6
Ineligible Receivable shall have the meaning assigned to such term in
Section 3.3(b) hereof.
Initial Closing Date shall have the meaning assigned to such term in
Section 1.2(a) hereof.
Initial Contributed Receivables shall have the meaning assigned to such
term in Section 1.1(b) hereof.
Initial Cut-Off Date means the Business Day immediately preceding the
Initial Closing Date.
Initial Purchaser Note shall have the meaning assigned to such term in
Section 3.1 hereof.
LIBO Rate shall have the meaning assigned to such term in Section 2.1
hereof.
Loss Discount shall have the meaning assigned to such term in Section
2.1 hereof.
Originator Loan shall have the meaning assigned to such term in Section
1.6 hereof.
Originator Note shall have the meaning assigned to such term in Section
1.6(a) hereof.
Payment Day means (i) the date hereof and (ii) each Business Day
thereafter that an Originator is open for business.
Purchase Price shall have the meaning assigned to such term in Section
2.1 hereof.
Purchase Report shall have the meaning assigned to such term in Section
2.1 hereof.
Related Rights shall have the meaning assigned to such term in Section
1.1(a) hereof.
Sale Indemnified Amounts shall have the meaning assigned to such term in
Section 7.1 hereof.
Sale Indemnified Party shall have the meaning assigned to such term in
Section 7.1 hereof.
Sale Termination Date shall be the Purchase Termination Date under the
Receivables Purchase Agreement.
Seller Material Adverse Effect means, with respect to any event or
circumstance:
(i) an effect on the assets, business, financial condition or
operations of Maxtor and its Subsidiaries, taken as a whole, which could
reasonably be expected to have a material adverse effect on the
creditworthiness of Maxtor;
<PAGE> 7
(ii) a material adverse effect on the ability of any Originator
to perform its obligations under this Agreement or any other Transaction
Document to which such Originator, in its capacity as such, is a party;
(iii) a material adverse effect on the validity or enforceability
as against any Originator of this Agreement or any other Transaction
Document to which any Originator, in its capacity as such, is a party;
(iv) a material adverse effect on the status, existence,
perfection, priority or enforceability of the Initial Purchaser's
interest in the Receivables Pool and the Related Rights; or
(v) a material adverse effect on the validity, enforceability
or collectibility of a material portion of the Receivables Pool.
PRELIMINARY STATEMENTS
.1. The Initial Purchaser is a limited purpose corporation, all of
the issued and outstanding shares of capital stock of which are wholly owned by
Maxtor.
.2. Each Originator wishes to sell Receivables that it now owns and
from time to time hereafter will own to the Initial Purchaser, and the Initial
Purchaser is willing, on the terms and subject to the conditions contained in
this Agreement, to purchase such Receivables from such Originator at such time.
.3. The Initial Purchaser has entered into the Receivables Purchase
Agreement, pursuant to which, among other things, the Initial Purchaser may sell
to the Administrator, for the benefit of Purchaser, undivided interests in the
Receivables and certain Related Rights.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties hereto agree as follows:
<PAGE> 8
ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASES
SECTION I.1. Agreement to Purchase and Sell.
(a) On the terms and conditions hereinafter set forth, and in
consideration of the Purchase Price, each Originator agrees to sell to the
Initial Purchaser, and the Initial Purchaser agrees to purchase from such
Originator, at the times set forth in Section 1.2, but prior to the Sale
Termination Date, all of such Originator's right, title, and interest in and to:
(i) each Receivable (other than Initial Contributed Receivables)
of such Originator that existed and was owing to such Originator as of
the close of such Originator's business on the Initial Cut-Off Date, in
the case of Maxtor, or on the Business Day immediately preceding the day
on which such Originator became a party hereto pursuant to Section 1.7
in the case of each other Originator;
(ii) each Receivable (other than Contributed Receivables) created
or originated by such Originator from the close of such Originator's
business on the Initial Cut-Off Date, in the case of Maxtor, or on the
Business Day immediately preceding the day on which such Originator
became a party hereto pursuant to Section 1.7 in the case of each other
Originator, to and including the Sale Termination Date;
(iii) all rights to, but not the obligations under, all related
Contracts and all Related Security with respect thereto;
(iv) all monies due or to become due with respect to the
foregoing;
(v) all books and records related to any of the foregoing;
(vi) all Lock-Box Accounts, all amounts on deposit therein and
all related agreements between such Originator and the Lock-Box Banks,
in each case to the extent constituting or representing items described
in paragraph (vii) below; and
(vii) all Collections in respect of, and other proceeds of,
Receivables or any other of the foregoing (as defined in the UCC)
received on or after the Initial Cut-Off Date, in the case of Maxtor, or
on the Business Day immediately preceding the day on which such
Originator became a party hereto pursuant to Section 1.7 in the case of
each other Originator, including, without limitation, all funds which
either are received by such Originator, the Initial Purchaser or the
Servicer from or on behalf of the Obligors in payment of any amounts
owed (including, without limitation, finance charges, interest
and
<PAGE> 9
all other charges) in respect of Receivables, or are applied to such
amounts owed by the Obligors (including, without limitation, insurance
payments, if any, that such Originator or the Servicer applies in the
ordinary course of its business to amounts owed in respect of any
Receivable and net proceeds of sale or other disposition of repossessed
goods or other collateral or property of the Obligors or any other party
directly or indirectly liable for payment of such Receivable and
available to be applied thereon).
All purchases and capital contributions hereunder shall be made without
recourse, but shall be made pursuant to and in reliance upon the
representations, warranties and covenants of the Originators set forth in each
Transaction Document. The proceeds and rights described in subsections (iii)
through (vii) of this Section 1.1(a) are herein collectively called the "Related
Rights".
(b) Agreement to Contribute. In consideration of the capital stock of
the Initial Purchaser issued to Maxtor, Maxtor contributed an undivided five
percent (5%) interest in Maxtor's right, title and interest in, to and under the
Receivables existing on April 8, 1998 pursuant to the Receivables Contribution
and Sale Agreement dated as of April 8, 1998, between Maxtor, as seller, and the
Initial Purchaser, as buyer, which amount is reflected on the balance sheet of
the Initial Purchaser as of the date hereof as stockholder's equity in the
amount of $16,236,550 (the "Initial Contributed Receivables"). Maxtor agrees to
contribute, and does hereby contribute to the Initial Purchaser, and the Initial
Purchaser does hereby accept, from Maxtor, all of Maxtor's right, title and
interest in and to all other Contributed Receivables contributed to the Initial
Purchaser from time to time.
SECTION I.2. Timing of Purchases.
(a) Initial Closing Date Purchase. On the date of the first Purchase
under the Receivables Purchase Agreement (the "Initial Closing Date") Maxtor
shall sell to the Initial Purchaser, and the Initial Purchaser shall purchase,
pursuant to Section 1.1, Maxtor's entire right, title and interest in (i) each
Receivable that existed and was owing to Maxtor as of the close of Maxtor's
business on the Initial Cut-Off Date, and (ii) all Related Rights with respect
thereto. Maxtor acknowledges and confirms that the Receivables repurchased by
the Initial Purchaser under the Repurchase Agreement on the Initial Closing Date
are owned by the Initial Purchaser, free and clear of any Lien or claim of
Maxtor.
(b) Regular Purchases and Contributions. After the Initial Closing Date,
and continuing until the Sale Termination Date, each Receivable described in
Section 1.1(a)(ii) hereof, and all the Related Rights with respect thereto,
created or originated by each Originator shall be sold or contributed by such
Originator to the Initial Purchaser (without any further action) upon the
creation or origination of such Receivable. All such Receivables, other than
those Receivables indicated on a Purchase Report as having been contributed by
the related Originator to the Initial Purchaser (such other Receivables,
together with the Initial Contributed Receivables, the
<PAGE> 10
"Contributed Receivables"), shall be sold to the Initial Purchaser on such date;
all Contributed Receivables shall be contributed by the related Originator to
the Initial Purchaser on such date.
SECTION I.3. No Recourse. Except as specifically provided in this
Agreement, the purchase and sale of Pool Receivables and Related Rights under
this Agreement shall be without recourse to the related Originator; provided
that each Originator shall be liable to the Initial Purchaser for all
representations, warranties, covenants and indemnities made by such Originator
pursuant to the terms of this Agreement, it being understood that such
obligation of such Originator will not arise on account of the failure of the
Obligor for credit reasons to make any payment in respect of a Pool Receivable.
SECTION I.4. True Sales.
(a) Each of the Initial Purchaser and each Originator intend the
transactions hereunder to constitute true sales (or in the case of Contributed
Receivables, conveyances in the form of capital contributions) of Pool
Receivables and the Related Rights by such Originator to the Initial Purchaser
providing the Initial Purchaser with the full benefits of ownership thereof, and
no party hereto intends the transactions contemplated hereunder to be, or for
any purpose to be characterized as, a loan from the Initial Purchaser to Maxtor.
(b) In the event (but only to the extent) that the conveyance of Pool
Receivables and Related Rights hereunder is characterized by a court or other
governmental authority as a loan rather than a sale or contribution, each
Originator shall be deemed hereunder to have granted to the Initial Purchaser,
and each Originator hereby grants to the Initial Purchaser, effective as of the
Initial Closing Date, a security interest in all of such Originator's right,
title and interest in, to and under all of the Pool Receivables and Related
Rights originated by it, whether now or hereafter owned, existing or arising.
Such security interest shall secure all of such Originator's obligations
(monetary or otherwise) under this Agreement and the other Transaction Documents
to which it is a party, whether now or hereafter existing or arising, due or to
become due, direct or indirect, absolute or contingent. The Initial Purchaser
shall have, with respect to the property described in this Section 1.4(b), and
in addition to all the other rights and remedies available to the Initial
Purchaser under this Agreement and applicable law, all the rights and remedies
of a secured party under the UCC, and this Agreement shall constitute a security
agreement under Applicable Law.
SECTION I.5. Consideration for Purchases. On the terms and subject to
the conditions set forth in this Agreement, the Initial Purchaser agrees to make
all Purchase Price payments to the Originators in accordance with Article III.
SECTION I.6. Initial Purchaser Agreement to Make Demand Loans. On the
terms and subject to the conditions set forth in this Agreement and in the
Receivables Purchase Agreement, the Initial Purchaser agrees to make demand
loans (each such loan being herein called an "Originator Loan") to each
<PAGE> 11
Originator prior to the Sale Termination Date in such amounts as such Originator
may request from time to time; provided, however, that:
(a) The Originator Loans made to each Originator shall be evidenced by a
demand promissory note in the form of Exhibit C to this Agreement issued by such
Originator to the order of the Initial Purchaser (such demand promissory note,
as it may be amended, supplemented, endorsed or otherwise modified from time to
time in accordance with the Transaction Documents, together with all promissory
notes issued from time to time in substitution therefor or renewal thereof in
accordance with the Transaction Documents, being called the "Originator Note");
and
(b) No Originator Loan shall be made to any Originator to the extent
that the making of such Originator Loan would violate the Receivables Purchase
Agreement.
SECTION I.7. Addition of Originators. Subsidiaries of Maxtor may be
added as Originators under this Agreement provided that all of the following
conditions have been met:
(i) the conditions precedent set forth in paragraphs (b) through
(k) of Section 4.1 are satisfied with respect to such Subsidiary;
(ii) such Subsidiary executes a joinder agreement, in form and
substance satisfactory to the Initial Purchaser and Administrator,
pursuant to which such Subsidiary agrees to become an Originator
hereunder, assumes all of the obligations of an Originator hereunder and
under the other Transaction Documents and makes all of the
representations and warranties set forth in Section 5.1;
(iii) Maxtor executes and delivers a guaranty of such
Subsidiary's obligations hereunder and under the other Transaction
Documents in form and substance satisfactory to the Initial Purchaser
and the Administrator; and
(iv) the Initial Purchaser and the Administrator consent to such
addition in writing, such consent not to be unreasonably withheld,
conditioned or delayed.
ARTICLE II
CALCULATION OF PURCHASE PRICE
SECTION II.1. Calculation of Purchase Price. On each Reporting Date
(commencing with the first Reporting Date following the Initial Closing Date),
the Servicer shall deliver to the Initial Purchaser, the Administrator, the
Liquidity Agent and Maxtor (if the Servicer is other than Maxtor) a report in
substantially the form of Exhibit A
<PAGE> 12
(each such report being herein called a "Purchase Report") with respect to the
Initial Purchaser's purchases of Receivables from the Originators
(a) that arose on or prior to the Initial Cut-Off Date (in the
case of the first Purchase Report to be delivered hereunder) and
(b) that arose during the Settlement Period immediately preceding
such Reporting Date (in the case of each successive Purchase Report).
Each Purchase Report shall designate the amount of such Receivables that were
Eligible Receivables on the date of origination (or, in the case of Receivables
transferred or contributed on the Initial Closing Date, on the Initial Closing
Date).
The "Purchase Price" (to be paid to the Originators in accordance with the terms
of Article III) for the Receivables and the Related Rights shall be determined
in accordance with the following formula:
PP = AUB - (AUB X FMVD)
where:
PP = Purchase Price (to be paid to the Originators in
accordance with the terms of Article III) as calculated on
the relevant Reporting Date;
AUB = for purposes of calculating the Purchase Price on the
Initial Closing Date, the aggregate Unpaid Balance of all
Receivables that existed and were owing to Maxtor as
measured as at the Initial Cut-Off Date, and
(ii) for purposes of calculating the Purchase Price for
Receivables on each Reporting Date thereafter, the
aggregate Unpaid Balance of the Receivables described in
Section 1.1(a)(ii) hereof that were generated by the
related Originator during the immediately preceding
Settlement Period, less an amount equal to the sum of the
aggregate Unpaid Balance of all Contributed Receivables, if
any, indicated on the related Purchase Report; and
FMVD = "Fair Market Value Discount Factor" on the determination
date, which is the sum of the Loss Discount and the Cost
Discount, in each case as calculated on the most recent
Reporting Date as set forth in the definitions below.
"Loss Discount" as measured on the Initial Closing Date or any Reporting
Date means the ratio, expressed as a percentage, of (i) the losses (i.e.
write-offs to the bad debt reserve or other write-offs consistent with the
Credit and Collection Policy, in each case, net of recoveries) recognized for
all Pool Receivables during the period equal to twelve (12) months ending on the
<PAGE> 13
Cut-Off Date immediately preceding the Initial Closing Date or such Reporting
Date, as the case may be, divided by (ii) the Collections on all Pool
Receivables received during such period.
"Cost Discount" as measured on the Initial Closing Date or any Reporting
Date means a percentage determined in accordance with the following formula:
CD = (TD/360) x CR
where:
CD = the Cost Discount as measured on such date;
TD = the Days Sales Outstanding, as set forth in the most
recent Purchase Report; and
CR = the Cost Rate as measured on such Reporting Date.
"Cost Rate" as measured on the Initial Closing Date or any Reporting
Date means a per annum percentage rate equal to the sum of (i) the LIBO Rate for
the Initial Closing Date or the related Settlement Period, as the case may be,
plus (ii) 1.50%.
"LIBO Rate" for the Initial Closing Date or any Settlement Period means
the offered rate per annum (rounded upwards, if necessary, to the nearest 1/16th
of one percent) appearing in The Wall Street Journal for three month LIBOR loans
on the Initial Closing Date or the first Business Day of such Settlement Period,
as the case may be.
"Days Sales Outstanding" means a number of days calculated as (i) Sales
as of the end of the second preceding month divided by the Collections for the
preceding month multiplied by (ii) 30.
ARTICLE III
PAYMENT OF PURCHASE PRICE
SECTION III.1. The Initial Purchase Price Payment.
(a) On or prior to the Initial Closing Date, the Initial Purchaser shall
pay the Purchase Price for the purchase to be made from Maxtor with respect to
the Receivables existing on or prior to the Initial Cut-Off Date (i) in cash in
an amount equal to the amount received by the Initial Purchaser from the
Purchaser in connection with the first Purchase made pursuant to the Receivables
Purchase Agreement, minus the amount required to be paid by the Initial
Purchaser to repurchase Receivables pursuant to the Repurchase Agreement and
(ii) by the issuance of a
<PAGE> 14
promissory note in the form of Exhibit B to this Agreement payable to the order
of Maxtor in the initial principal amount equal to the remainder of the Purchase
Price owing after subtracting the amount paid in cash plus the balance of the
Non-Negotiable Term Note dated April 8, 1998, executed and delivered by the
Initial Purchaser in favor of Maxtor, as adjusted after giving effect to the
Repurchase Agreement, and upon such adjustment and transfer of the outstanding
balance pursuant to this Section 3.1(a), the Non-Negotiable Term Note dated
April 8, 1998 shall be deemed cancelled in accordance with the terms of the
Repurchase Agreement (such promissory note together with the promissory note
issued to any other Originator hereunder, as it may be amended, supplemented,
endorsed or otherwise modified from time to time, together with any promissory
notes issued from time to time in substitution therefor or renewal thereof in
accordance with the Transaction Documents, being called an "Initial Purchaser
Note"), each of which Initial Purchaser Note shall, in accordance with its
terms, be subordinated to all interests in Pool Receivables and Related Rights
and all obligations of the Initial Purchaser, of any nature, whether now or
hereafter arising under or in connection with the Receivables Purchase
Agreement.
(b) The Servicer shall hold the Initial Purchaser Note for the benefit
of the related Originator, and shall make all appropriate record-keeping entries
with respect to the Initial Purchaser Note or otherwise to reflect payments on
and adjustments of the Initial Purchaser Note. The Servicer's books and records
shall constitute rebuttable presumptive evidence of the principal amount of and
accrued and unpaid interest on the Initial Purchaser Note at any time. Each
Originator hereby irrevocably authorizes the Servicer to mark its Initial
Purchaser Note "CANCELED" and to return such Initial Purchaser Note to the
Initial Purchaser upon the full and final payment thereof after the Sale
Termination Date.
SECTION III.2. Purchase Price Payments. On each Business Day falling
after the date of the Initial Closing Date until the termination of this
Agreement pursuant to Section 9.4, on the terms and subject to the conditions of
this Agreement, the Initial Purchaser shall pay to each Originator the Purchase
Price for the Pool Receivables and Related Rights purchased from such Originator
during the immediately preceding Settlement Period as follows:
(i) First, by paying to such Originator a portion of the
Purchase Price due pursuant to Section 2.1 by depositing into such
account as such Originator shall specify immediately available funds
from monies held by or on behalf of the Initial Purchaser solely to the
extent that such monies do not constitute Collections that are required
to be segregated and held by the Servicer or distributed to the
Administrator or the Purchaser pursuant to the Receivables Purchase
Agreement on the next Settlement Date or required to be paid to the
Servicer as the Servicer's Fee on the next Settlement Date, or otherwise
necessary to pay current expenses of the Initial Purchaser (in its
reasonable discretion)(such available monies, the "Available Funds"),
subject to the terms of the Receivables Purchase Agreement. Any
Collections that have been paid to, or retained by, the related
Originator during such Settlement Period shall be credited towards the
Initial
<PAGE> 15
Purchaser's obligation pursuant to this clause first; provided, however,
that, if Collections paid to, or retained by, such Originator exceed the
Purchase Price for Pool Receivables and Related Rights purchased from
such Originator for such Settlement Period, or, absent a cash payment,
the Initial Purchaser shall not have sufficient cash to meet its payment
obligations pursuant to the Receivables Purchase Agreement, such
Originator shall turn over such excess to the Initial Purchaser;
(ii) Second, to the extent any portion of the Purchase Price
remains unpaid, the principal amount outstanding under the related
Originator Note automatically shall be reduced and deemed paid in an
amount equal to such remaining Purchase Price, until such outstanding
principal amount is reduced to zero; and
(iii) Third, to the extent any portion of the Purchase Price
remains unpaid, the principal amount outstanding under the Initial
Purchaser Note issued to such Originator automatically shall be
increased in an amount equal to such remaining Purchase Price.
To the extent that (x) the amount due pursuant to Section 2.1 with respect to
all Receivables created or originated by an Originator that arose during the
corresponding Settlement Period is exceeded by (y) the amount paid to such
Originator during such Settlement Period pursuant to the foregoing sentences for
such Receivables, such excess shall be treated as a reduction in the principal
amount of the Initial Purchaser Note, effective as of the last day of the
related Settlement Period; provided, however, that if at any time the unpaid
principal amount of the Initial Purchaser Note has been reduced to zero, such
Originator shall pay the Initial Purchaser the remainder owed with respect
thereto in immediately available funds.
SECTION III.3. Deemed Collections, Etc.
(a) If on any day the Unpaid Balance of any Pool Receivable owed by an
Obligor is reduced or adjusted as a result of any defective, rejected or
returned merchandise or services, any cash discount, any credit, any incorrect
billing, pricing adjustment or any other adjustment by an Originator or any
Affiliate of an Originator, or is reduced or canceled as a result of a setoff in
respect of any claim by the Obligor thereof against an Originator or any
Affiliate of Maxtor (whether such claim arises out of the same or a related or
unrelated transaction) or as a result of any dispute or any obligation of an
Originator or any Affiliate of an Originator to pay to the related Obligor any
rebate or refund, or to rework any product or service, such Originator shall
deliver to the Servicer in same day funds an amount equal to the amount of such
reduction or adjustment, provided that, prior to the Sale Termination Date, such
amount may be paid by a reduction to the Purchase Price to be paid to such
Originator on the next occurring Reporting Date;
(b) if on any day any of the representations or warranties in Sections
5.1 (i) and (k) hereto is not true with respect to any Pool Receivable or if the
representation or warranty in Section 5.1(u) was not true with respect to any
Pool Receivable as of the date it was sold or
<PAGE> 16
contributed hereunder (each such Receivable, an "Ineligible Receivable"), the
related Originator shall deliver to the Servicer in same day funds an amount
equal to the Unpaid Balance of such Pool Receivable for application by the
Servicer to the same extent as if Collections of such Unpaid Balance had
actually been received on such date, provided that prior to the Sale Termination
Date, such amount may be paid by a reduction to the Purchase Price to be paid to
such Originator on the next occurring Reporting Date;
(c) except as provided in paragraph (a) or (b) of this Section 3.3, or
as otherwise required by Applicable Law or the relevant Contract, all
Collections received from an Obligor of any Pool Receivables shall be applied to
the Pool Receivables of such Obligor in the order of the age of such Pool
Receivables, starting with the oldest such Pool Receivable, unless such Obligor
designates in writing its payment for application to specific Pool Receivables;
(d) if and to the extent that the Initial Purchaser shall be required
for any reason to pay over to an Obligor (or any trustee, receiver, custodian or
similar official in any Event of Bankruptcy) any amount received by it
hereunder, such amount shall be deemed not to have been so received but rather
to have been retained by the related Originator and, accordingly, the Initial
Purchaser shall have a claim against such Originator for such amount, payable
when and to the extent that any distribution from or on behalf of such Obligor
is made in respect thereof; and
(e) in the event that an Originator has paid (by effecting a Purchase
Price reduction or otherwise) to the Initial Purchaser the full Unpaid Balance
of any Receivable pursuant to this Section 3.3, the Initial Purchaser shall
reconvey such Receivable and all Related Rights with respect thereto to such
Originator, without recourse, representation or warranty, but free and clear of
all Liens created by the Initial Purchaser; such reconveyed Receivables and all
Related Rights shall no longer be subject to the terms of this Agreement
(including any obligation to turn over Collections with respect thereto).
SECTION III.4. Payments and Computations, Etc.
(a) All amounts to be paid or deposited by an Originator or the Servicer
hereunder shall be paid or deposited no later than 11:00 a.m. (New York time) on
the day when due in same day funds. All amounts received after 11:00 a.m. (New
York time) will be deemed to have been received on the immediately succeeding
Business Day.
(b) Each Originator shall, to the extent permitted by law, pay interest
on any amount not paid or deposited by such Originator (whether as Servicer, or
otherwise) when due hereunder, at an interest rate equal to 2.0% per annum above
the Alternate Base Rate, payable on demand.
(c) All computations of interest under Section 3.4(b) and all
computations of the Purchase Price, fees, and other amounts hereunder shall be
made on the basis of a 360-day year and actual days elapsed. Whenever any
payment or deposit to be made hereunder shall be due on
<PAGE> 17
a day other than a Business Day, such payment or deposit shall be made on the
next succeeding Business Day and such extension of time shall be included in the
computation of such payment or deposit.
ARTICLE IV
CONDITIONS TO PURCHASES
SECTION IV.1. Conditions Precedent to Initial Purchase. The initial
Purchase under this Agreement is subject to the condition precedent that the
Initial Purchaser shall have received each of the following (with copies to the
Administrator), on or before the date of such purchase, each in form and
substance (including the date thereof) satisfactory to the Initial Purchaser and
the Administrator:
(a) The Receivables Purchase Agreement, duly executed by the
parties thereto, together with evidence reasonably satisfactory to the
Initial Purchaser that all conditions precedent to the initial Purchase
of an undivided interest thereunder (other than any condition relating
to the effectiveness of the purchase commitment under this Agreement)
shall have been met;
(b) A certificate of the Secretary of Maxtor certifying (i) a
copy of the resolutions of its Board of Directors approving this
Agreement and the other Transaction Documents to be delivered by it
hereunder and the transactions contemplated hereby; (ii) the names and
true signatures of the officers authorized on its behalf to sign this
Agreement and the other Transaction Documents to be delivered by it
hereunder (on which certificate the Administrator and Initial Purchaser
may conclusively rely until such time as the Administrator shall receive
from Maxtor a revised certificate meeting the requirements of this
subsection (b)); (iii) a copy of its by-laws; and (iv) all documents
evidencing other necessary corporate action and governmental approvals,
if any, with respect to this Agreement and the other Transaction
Documents;
(c) The Certificate of Incorporation of Maxtor, duly certified
by the Secretary of State of Delaware, as of a recent date acceptable to
Administrator;
(d) Acknowledgment copies or time stamped receipt copies, of the
proper financing statements (Form UCC-1) that have been duly executed
and name Maxtor as the debtor and seller and the Initial Purchaser as
the secured party and purchaser (and the Administrator, for the benefit
of the Purchaser, as assignee of the Initial Purchaser) of the
Receivables and the Related Rights or other, similar instruments or
documents, as may be necessary or, in Servicer's or the Administrators's
opinion, desirable under the UCC or any comparable law of all
appropriate jurisdictions to perfect the Initial Purchaser's ownership
<PAGE> 18
interest in all Receivables and Related Rights in which an ownership
interest may be assigned to it hereunder;
(e) A search report provided in writing to and approved by the
Administrator, listing all effective financing statements that name
Maxtor as debtor or assignor and that are filed in the jurisdictions in
which filings were made pursuant to subsection (d) above and in such
other jurisdictions that Administrator shall reasonably request,
together with copies of such financing statements (none of which shall
cover any Pool Assets), and tax and judgment lien search reports from a
Person satisfactory to Servicer and the Administrator showing no
evidence of such liens filed against Maxtor;
(f) Duly executed copies of the Lock-Box Agreements with the
Lock-Box Banks;
(g) A pro forma Purchase Report, prepared in respect of the
proposed initial Purchase, assuming an Initial Cut-Off Date of June 30,
1998;
(h) The Initial Purchaser Note in favor of Maxtor, duly executed
by the Initial Purchaser;
(i) Such other agreements, instruments, UCC financing
statements, certificates, opinions and other documents as the Initial
Purchaser or the Administrator may reasonably request.
SECTION IV.2. Conditions Precedent to All Purchases. Each purchase under
this Agreement is subject to the condition precedent that the agreement of the
Originator to sell Pool Receivables and Related Rights, and the agreement of the
Initial Purchaser to purchase Pool Receivables and Related Rights, shall not
have terminated pursuant to Section 9.4 of this Agreement, and shall be subject
further to the conditions precedent that:
(a) in the case of each purchase, the Servicer shall have
delivered to the Initial Purchaser on or prior to such purchase, a
completed Purchase Report with respect to the immediately preceding
calendar month, together with such additional information as may be
reasonably requested by the Initial Purchaser; and
(b) the representations and warranties contained in Article V
are correct on and as of such day as though made on and as of such day
and shall be deemed to have been
made on such day (except that any such representation or warranty that
is expressly stated as being made only as of a specified earlier date
shall be true and correct in all material respects as of such earlier
date).
<PAGE> 19
SECTION IV.3. Certification as to Representations and Warranties. Each
Originator, by accepting the Purchase Price (whether in cash or by an increase
in the principal amount outstanding under the Initial Purchaser Note or a
reduction of the Originator Note) paid for each purchase of Pool Receivables and
Related Rights on any day, shall be deemed to have certified that its
representations and warranties contained in Article V are true and correct on
and as of such day, with the same effect as though made on and as of such day
(except that any such representation or warranty that is expressly stated as
being made only as of a specified earlier date shall be true and correct in all
material respects as of such earlier date).
SECTION IV.4. Effect of Payment of Purchase Price. Upon the
payment of the Purchase Price (whether in cash or by an increase in the
principal amount outstanding under an Initial Purchaser Note or a reduction of
an Originator Note) for any purchase of Pool Receivables and Related Rights,
title to such Pool Receivables and Related Rights shall vest in the Initial
Purchaser, whether or not the conditions precedent to such purchase were in fact
satisfied; provided that the Initial Purchaser shall not be deemed to have
waived any claim it may have under this Agreement for the failure by an
Originator in fact to satisfy any such condition precedent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION V.1. Representations and Warranties. In order to induce the
Initial Purchaser to enter into this Agreement and to make purchases thereunder,
Maxtor hereby represents and warrants as follows:
(a) Organization and Good Standing. Maxtor has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware, with power and authority to own
its properties and to conduct its business as such properties are
presently owned and such business is presently conducted.
(b) Due Qualification. Maxtor is duly qualified to do business
as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in all jurisdictions in which the
ownership or lease of property or the conduct of its business requires
such qualification, licenses or approvals except where the failure to so
qualify or have such licenses or approvals has not had, and could not
reasonably be expected to have, a Seller Material Adverse Effect.
(c) Power and Authority; Due Authorization. Maxtor (i) has all
necessary power, authority and legal right to (A) execute and deliver
this Agreement and the other Transaction
<PAGE> 20
Documents to which it is a party, (B) carry out the terms of the
Transaction Documents to which it is a party, and (C) sell and assign
the Receivables and Related Rights on the terms and conditions herein
provided and (ii) has duly authorized by all necessary corporate action
the execution, delivery and performance of this Agreement and the other
Transaction Documents to which it is a party.
(d) Binding Obligations. This Agreement constitutes, and each
other Transaction Document to be signed by Maxtor when duly executed and
delivered will constitute, a legal, valid and binding obligation of
Maxtor enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the other Transaction Documents to
which Maxtor is a party and the fulfillment of the terms hereof and
thereof will not (i) conflict with, result in any breach of any of the
terms and provisions of, or constitute (with or without notice or lapse
of time or both) a default under the Maxtor's articles of incorporation
or by-laws or any Contractual Obligation of Maxtor, (ii) result in the
creation or imposition of any Lien upon any of Maxtor's properties
pursuant to the terms of any such Contractual Obligation, other than
this Agreement, or (iii) violate any Applicable Law.
(f) No Proceedings. There is no litigation, proceedings or
investigations pending or, to the best of Maxtor's knowledge,
threatened, before any Governmental Authority or arbitrator (i)
asserting the invalidity of this Agreement or any other Transaction
Document to which Maxtor is a party, (ii) seeking to prevent the sale
and assignment of the Receivables and Related Rights, the collectibility
of the Receivables or the consummation of any of the other transactions
contemplated by this Agreement or any other Transaction Document, or
(iii) seeking any determination or ruling that could reasonably be
expected to have a Seller Material Adverse Effect.
(g) Government Approvals. No Governmental Action is required for
the due execution, delivery and performance by Maxtor of this Agreement
or any other Transaction Document to which it is a party.
(h) Securities Exchange Act. No proceeds of any purchase will be
used to acquire any equity security of a class which is registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
(i) Quality of Title; Valid Sale; Etc. Upon its creation and
prior to its sale or contribution to the Initial Purchaser under this
Agreement, it is the legal and beneficial owner of each of the
Receivables and the Related Rights originated by it free and clear of
any Lien; and upon each purchase or contribution the Initial Purchaser
shall acquire a valid
<PAGE> 21
and enforceable ownership interest in each Pool Receivable then existing
or thereafter arising and in the Related Rights with respect thereto,
free and clear of any Lien, enforceable against all creditors of, and
purchasers from, Maxtor. Each Pool Receivable constitutes an "account"
as such term is defined in the UCC. No effective financing statement or
other instrument similar in effect covering any Pool Receivable or
Related Rights with respect thereto is on file in any recording office,
except those filed in favor of the Initial Purchaser pursuant to this
Agreement and in favor of the Administrator pursuant to the Receivables
Purchase Agreement and except those that will be terminated on the
Initial Closing Date.
(j) Accuracy of Information. Each report, information, exhibit,
financial statement, document, book, record or report furnished or to be
furnished at any time by or on behalf of it to the Initial Purchaser or
the Administrator in connection with this Agreement is or will be
accurate in all material respects as of its date or (except as otherwise
disclosed to the Administrator at such time) as of the date so
furnished, and no such item contains or will contain any untrue
statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained therein, in the
light of the circumstances under which they were made, not materially
misleading.
(k) Offices. The principal place of business and chief executive
office of Maxtor are located at the address of Maxtor referred to in
Section 9.2, and the offices where Maxtor keeps all its books, records
and documents evidencing or relating to Pool Receivables are located at
the address of Maxtor referred to in Section 9.2 (or at such other
locations, notified to the Administrator in accordance with Section
6.1(e), in jurisdictions where all action required by Section 8.4 has
been taken and completed).
(l) Bulk Sales Act. No transaction contemplated hereby requires
compliance with any bulk sales act or similar law.
(m) Margin Regulations. The use of all funds obtained by Maxtor
under this Agreement will not conflict with or contravene any of
Regulations G, T, U or X promulgated by the Federal Reserve Board from
time to time.
(n) Maintenance of Books and Records. It has accounted for each
sale of Pool Receivables and Related Rights in its books and financial
statements as sales, consistent with GAAP.
(o) Credit and Collection Policy. It has complied in all
material respects with the Credit and Collection Policy with regard to
each Receivable.
(p) Solvency. It is solvent; and at the time of (and immediately
after) each sale pursuant to this Agreement it shall be solvent.
<PAGE> 22
(q) Compliance with Transaction Documents. It, as Servicer or
Originator, has complied with all of the terms, covenants and agreements
contained in this Agreement and the other Transaction Documents
applicable to it.
(r) Corporate Name. Maxtor's complete corporate name is set
forth in the preamble to this Agreement, and Maxtor does not use and has
not during the last six years used any other corporate name, trade name,
doing business name or fictitious name.
(s) Investment Company Act. It is not, and is not controlled by,
an "investment company" registered or required to be registered under
the Investment Company Act of 1940, as amended.
(t) Eligible Receivables. Each Pool Receivable sold or
contributed by it to the Initial Purchaser hereunder that is designated
as an Eligible Receivable on a Purchase Report is in fact an Eligible
Receivable as of the date of such Purchase Report.
ARTICLE VI
COVENANTS
SECTION VI.1. Affirmative Covenants. From the date hereof until the
Final Payout Date:
(a) Compliance with Laws, Etc. Each Originator will comply in
all material respects with all Applicable Laws, including those with
respect to the Pool Receivables and the related Contracts, except where
noncompliance could not reasonably be expected to have a Seller Material
Adverse Effect.
(b) Preservation of Corporate Existence. Each Originator will
preserve and maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its formation, 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 could reasonably be expected to
have a Seller Material Adverse Effect.
(c) Audits. (i) Each Originator will at any time and from time
to time during regular business hours, permit the Administrator or any
of its agents or representatives, (A) to examine and make copies of and
abstracts from all books, records and documents (including, without
limitation, computer tapes and disks) in its possession or under its
control relating to Pool Receivables, (B) to visit its offices and
properties for the purpose of examining such materials described in
clause (i)(A) above, and to discuss matters relating to Pool Receivables
or its performance hereunder with any of its officers or
<PAGE> 23
employees having knowledge of such matters, and (C) to verify the
existence and amount of the Pool Receivables; and (ii) without limiting
the provisions of clause (i) above, from time to time on request of
Administrator, permit certified public accountants or other auditors
acceptable to the Administrator to conduct, at such Originator's
expense, a review of its books and records with respect to the Pool
Receivables; provided that unless a Liquidation Event exists, such
Originator shall not be responsible for the cost of more than one such
audit in any calendar year.
(d) Keeping of Records and Books of Account. Each Originator
will maintain and implement administrative and operating procedures
(including, without limitation, an ability to recreate records
evidencing Pool 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 Pool Receivables (including, without limitation,
records adequate to permit the daily identification of each new Pool
Receivable and all Collections of and adjustments to each existing Pool
Receivable).
(e) Location of Records. Each Originator will keep its principal
place of business and chief executive office, and the offices where it
keeps its records concerning the Pool Receivables and all related
Contracts and all other agreements related to such Pool Receivables (and
all original documents relating thereto), at its address(es) referred to
in Section 9.2 or, upon 30 days' prior written notice to the
Administrator, at such other locations in jurisdictions where all action
required by Section 8.4 shall have been taken and completed.
(f) Credit and Collection Policies. Each Originator, at its own
expense, will timely and fully perform and comply in all material
respects with the Credit and Collection Policy in regard to each Pool
Receivable and the related Contracts.
(g) Collections. On or before the Initial Closing Date, each
Originator will instruct (i) all Obligors to cause all Collections to be
sent to a Lock-Box that is the subject of a Lock-Box Agreement and (ii)
each Lock-Box Bank to deposit all such Collections directly into a
Lock-Box Account that is the subject of a Lock-Box Agreement. In the
event that any Originator receives Collections directly from any
Obligor, any Originator shall deposit such Collections into a Lock-Box
Account within two Business Days of receipt thereof.
SECTION VI.2. Negative Covenants. From the Initial Closing Date until
the Final Payout Date:
(a) Sales, Liens, Etc. No Originator will, except as otherwise
provided herein or in any other Transaction Document, sell, assign (by
operation of law or otherwise) or
<PAGE> 24
otherwise dispose of, or create or suffer to exist any Lien upon or with
respect to, any Pool Receivable or any interest therein.
(b) Extension or Amendment of Receivables. No Originator will,
except as otherwise permitted in any other Transaction Document, extend,
amend or otherwise modify, or permit Servicer to extend, amend or
otherwise modify, the terms of any Pool Receivable; or amend, modify or
waive, or permit Servicer to amend, modify or waive, any term or
condition of any Contract related to a Pool Receivable.
(c) Change in Business or Credit and Collection Policy. No
Originator will make any change in the character of its business or in
the Credit and Collection Policy, which change could impair the
collectibility of any Pool Receivable or otherwise adversely affect the
interests or remedies of the Administrator, Purchaser or the Initial
Purchaser under this Agreement or any other Transaction Document.
(d) Change in Payment Instructions to Obligors. No Originator
will add or terminate any bank as a Lock-Box Bank or any Lock-Box
Account from those listed in Schedule I or make any change, or permit
Servicer to make any change, in its instructions to Obligors regarding
payments to be made to the Initial Purchaser or Servicer or payments to
be made to any Lock-Box Bank, unless the Administrator shall have
received notice of such addition, termination or change and duly
executed copies of Lock-Box Agreements with each new Lock-Box Bank or
with respect to each new Lock-Box Account, as the case may be.
(e) Mergers, Acquisitions, Sales, etc. No Originator will (i) be
a party to any merger or consolidation, or purchase or otherwise acquire
all or substantially all of the assets or any stock of any class of, or
any partnership or joint venture interest in, any other Person without
the consent of the Administrator, unless, in the case of Maxtor, Maxtor
is the surviving corporation, and no Liquidation Event has occurred and
is continuing or would result therefrom or (ii) sell, transfer, convey
or lease all or any substantial part of its assets, or sell or assign
with or without recourse any Receivables or any interest therein (other
than pursuant hereto or to the Receivables Purchase Agreement).
(f) Deposits to Special Accounts. No Originator will deposit or
otherwise credit, or cause or permit to be so deposited or credited, to
any Lock-Box Account cash or cash proceeds other than Collections of
Pool Receivables.
SECTION VI.3. Separate Existence. Each Originator hereby acknowledges
that Purchaser and the Administrator are entering into the transactions
contemplated by the other Transaction Documents in reliance upon the Initial
Purchaser's identity as a legal entity separate from each Originator. Therefore,
from and after the date hereof, each Originator shall take all steps
specifically required by the Transaction Documents or by the Initial
<PAGE> 25
Purchaser, Purchaser or Administrator to continue the Initial Purchaser's
identity as a separate legal entity and to make it apparent to third Persons
that the Initial Purchaser is an entity with assets and liabilities distinct
from those of such Originator and any other Person, and is not a division of
such Originator or any other Person.
ARTICLE VII
INDEMNIFICATION
SECTION VII.1. Indemnities by the Originators. Without limiting any
other rights which the Initial Purchaser and each of its permitted assigns,
officers, directors, employees and agents (each of the foregoing Persons being
individually called a "Sale Indemnified Party") may have hereunder or under
applicable law, each Originator, jointly and severally, hereby agrees to
indemnify the Initial Purchaser and each Sale Indemnified Party from and against
any and all damages, losses, claims, judgments, liabilities and related costs
and expenses, including reasonable attorneys' fees and disbursements (all of the
foregoing collectively being called "Sale Indemnified Amounts") arising out of
or resulting from this Agreement (whether directly or indirectly) or the use of
proceeds of purchases or the ownership of any Pool Receivable or Related Rights,
excluding, however, (a) Sale Indemnified Amounts to the extent resulting from
gross negligence or willful misconduct on the part of the Initial Purchaser or
such Sale Indemnified Party, (b) Sale Indemnified Amounts to the extent the same
includes losses in respect of Pool Receivables and reimbursement therefor that
would constitute credit recourse to the Originators for the amount of any Pool
Receivable or Related Rights not paid by the related Obligor for credit reasons,
or (c) any net income taxes or franchise taxes imposed on the Initial Purchaser
or such Sale Indemnified Party by the jurisdiction under the laws of which such
Sale Indemnified Party is organized or any political subdivision thereof.
Without limiting or being limited by the foregoing, but subject to the
exclusions set forth in the immediately preceding sentence, each Originator,
jointly and severally, shall pay on demand to the Initial Purchaser and each
Sale Indemnified Party any and all amounts necessary to indemnify the Initial
Purchaser and such Sale Indemnified Party from and against any and all Sale
Indemnified Amounts relating to or resulting from any of the following:
(i) the transfer by any Originator of an interest in any
Receivable or Related Rights to any Person other than the Initial
Purchaser;
(ii) the failure of any information provided by any Originator,
as Servicer or otherwise, to the Initial Purchaser, the Purchaser, the
Administrator or the Servicer with respect to Pool Receivables or this
Agreement to be true, correct and complete;
(iii) the failure of any representation or warranty or statement
made or deemed made by any Originator (or any of its officers), as
Servicer or otherwise, under or in connection with this Agreement to
have been true and correct when made;
<PAGE> 26
(iv) the failure by any Originator, as Servicer or otherwise, to
comply with any Applicable Law, with respect to any Pool Receivable or
Related Rights; or the failure of any Pool Receivable or Related Rights
to conform to any such Applicable Law;
(v) the failure to vest and maintain vested in the Initial
Purchaser a valid and enforceable ownership interest in each Pool
Receivable at any time existing and the Related Rights with respect
thereto, free and clear of any Lien, other than a Lien arising solely as
a result of an act of the Initial Purchaser, the Purchaser, the
Liquidity Agent or the Administrator, whether existing as the time of
purchase of such Pool Receivable or at any time thereafter;
(vi) the failure of any Originator to have filed, or any delay in
filing, financing statements or other similar instruments or documents
under the UCC of any applicable jurisdiction or other applicable laws
with respect to any Pool Receivables and the Related Rights in respect
thereof, whether at the time of any purchase or at any subsequent time;
(vii) any dispute, claim, offset or defense (other than discharge
in bankruptcy) of the Obligor to the payment of any Pool Receivable
(including, without limitation, a defense based on such Pool Receivable
or the related Contract not being a legal, valid and binding obligation
of such Obligor enforceable against it in accordance with its terms), or
any other claim resulting from the sale of the goods or services related
to such Pool Receivable or the furnishing or failure to furnish such
goods or services or relating to collection activities with respect to
such Pool Receivable (if such collection activities were performed by
any Originator or any of its Affiliates, acting as Servicer or by any
agent or independent contractor retained by any Originator or any of its
Affiliates);
(viii) any failure of any Originator, as Servicer or otherwise, to
perform its duties or obligations in accordance with the provisions
hereof or under the Receivables Purchase Agreement or to perform its
duties or obligations under the Contracts;
(ix) any products liability or other claim, investigation,
litigation or proceeding arising out of or in connection with
merchandise, insurance or services which are the subject of any
Contract;
(x) the commingling of Collections of Pool Receivables at any
time with other funds;
(xi) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of purchases or the ownership of any
Pool Receivable or Related Rights;
(xii) any tax or governmental fee or charge (but not including
taxes upon or measured by net income or representing a franchise or
unincorporated business tax on
<PAGE> 27
such Sale Indemnified Party), all interest and penalties thereon or with
respect thereto, and all out-of-pocket costs and expenses, including the
reasonable fees and expenses of counsel in defending against the same,
which may arise by reason of the purchase or ownership of the
Receivables generated by any Originator or any Related Rights connected
with any such Receivables; or
(xiii) any requirement that all or a portion of the distributions
made to the Initial Purchaser pursuant to this Agreement shall be
rescinded or otherwise must be returned to any Originator for any
reason.
SECTION VII.2. Contribution. If for any reason the indemnification
provided above in this Article VII (and subject to the exceptions set forth
therein) is unavailable to the Initial Purchaser or a Sale Indemnified Party or
is insufficient to hold the Initial Purchaser or a Sale Indemnified Party
harmless, then the Originators shall contribute to the maximum amount of Sale
Indemnified Amounts payable or paid by the Initial Purchaser or such Sale
Indemnified Party in such proportion as is appropriate to reflect not only the
relative benefits received by the Initial Purchaser or such Sale Indemnified
Party on the one hand and the Originators on the other hand, but also the
relative fault of such Sale Indemnified Party (if any) and the Originators and
any other relevant equitable considerations.
SECTION VII.3. After-Tax Basis. Indemnification hereunder shall be in an
amount necessary to make the Sale Indemnified Party whole after taking into
account any tax consequences to the Sale Indemnified Party of the receipt of the
indemnity provided hereunder, including the effect of such tax or refund on the
amount of tax measured by net income or profits which is or was payable by the
Sale Indemnified Party.
<PAGE> 28
ARTICLE VIII
ADMINISTRATION AND COLLECTIONS; ADDITIONAL RIGHTS
AND OBLIGATIONS IN RESPECT OF THE POOL RECEIVABLES
SECTION VIII.1. Servicing of Pool Receivables and Related Rights.
Consistent with the Initial Purchaser's ownership of the Pool Receivables and
the Related Rights, the Initial Purchaser shall have the sole right to service,
administer and collect the Pool Receivables, to assign such right and to
delegate such right to others. In consideration of the Initial Purchaser's
purchase of the Pool Receivables and the Related Rights, each Originator agrees
to cooperate fully with the Initial Purchaser to facilitate the full and proper
performance of such duties and obligations for the benefit of the Initial
Purchaser, the Purchaser, and the Administrator. To the extent that the Initial
Purchaser, individually or through the Servicer, has granted or grants powers of
attorney to the Administrator under the Receivables Purchase Agreement, each
Originator hereby grants a corresponding power of attorney on the same terms to
the Initial Purchaser. Each Originator hereby acknowledges and agrees that the
Initial Purchaser, in all of its capacities, shall assign to the Administrator
for the benefit of the Purchaser and the Administrator such powers of attorney
and other rights and interests granted by such Originator to the Initial
Purchaser hereunder, and agrees to cooperate fully with the Administrator in the
exercise of such rights.
SECTION VIII.2. Rights of the Initial Purchaser; Enforcement Rights.
(a) The Initial Purchaser shall have no obligation to account for, to
replace, to substitute or to return any Receivables and Related Rights to any
Originator. The Initial Purchaser shall have no obligation to account for, or to
return to any Originator, Collections, or any interest or other finance charge
collected pursuant thereto, without regard to whether such Collections and
charges are in excess of the Purchase Price for such Pool Receivables and
Related Rights.
(b) The Initial Purchaser shall have the unrestricted right to further
assign, transfer, deliver, hypothecate, subdivide or otherwise deal with the
Pool Receivables and Related Rights, and all of the Initial Purchaser's right,
title and interest in, to and under this Agreement, on whatever terms the
Initial Purchaser shall determine, pursuant to the Receivables Purchase
Agreement or otherwise.
(c) The Initial Purchaser shall have the sole right to retain any gains
or profits created by buying, selling or holding the Pool Receivables and
Related Rights and, except as expressly set forth in the Transaction Documents,
shall have the sole risk of and responsibility for losses or damages created by
such buying, selling or holding.
<PAGE> 29
(d) At any time following the designation of a Servicer (other than
Maxtor) in accordance with the Receivables Purchase Agreement:
(i) the Administrator may direct the Obligors that payment of all
amounts payable under any Pool Receivable be made directly to the
Administrator or its designee;
(ii) the Administrator may instruct Maxtor to give notice of the
Initial Purchaser's interest in the Pool Receivables or the Purchaser's
interest in Pool Receivables to each Obligor, which notice shall direct
that payments with respect to Pool Receivables be made directly to the
Administrator or its designee, and upon such instruction from the
Administrator Maxtor shall give such notice at its expense; provided,
that if Maxtor fails to so notify each Obligor, the Administrator may so
notify the Obligors; and
(iii) the Administrator may request Maxtor to, and upon such
request Maxtor shall, (A) assemble all of the records necessary or
desirable to collect the Pool Receivables and the Related Rights
(including, without limitation, computer programs, tapes and disks,
other than excluded data), and make the same available to the
Administrator or its designee at a place selected by the Administrator,
and (B) segregate all cash, checks and other instruments received by it
from time to time constituting Collections with respect to the Pool
Receivables in a manner acceptable to the Administrator and, promptly
upon receipt, remit all such cash, checks and instruments, duly endorsed
or with duly executed instruments of transfer, to the Administrator or
its designee.
(e) Each Originator hereby authorizes the Initial Purchaser, and
irrevocably appoints the Initial Purchaser as its attorney-in-fact with full
power of substitution and with full authority in the place and stead of such
Originator, which appointment is coupled with an interest, to take any and all
steps in the name of such Originator and on behalf of such Originator necessary
or desirable, in the determination of the Initial Purchaser, to collect any and
all amounts or portions thereof due under any and all Pool Receivables or
Related Rights, including, without limitation, endorsing the name of such
Originator on checks and other instruments representing Collections and
enforcing such Pool Receivables and Related Rights.
SECTION VIII.3. Responsibilities of the Originator. Anything herein to
the contrary notwithstanding:
(a) each Originator agrees to deliver directly to the Servicer (for the
Initial Purchaser's account), within two (2) Business Days of receipt thereof,
any Collections that it receives, in the form so received, and agrees that all
Collections shall be deemed to be received in trust for the Initial Purchaser
and shall be maintained and segregated separate and apart from all other funds
and moneys of such Originator until delivery of the Collections to the Servicer;
<PAGE> 30
(b) each Originator agrees to instruct (i) all Obligors to cause all
Collections to be sent to a Lock-Box that is the subject of a Lock-Box Agreement
and (ii) each Lock-Box Bank to deposit all such Collections directly into a
Lock-Box Account that is the subject of a Lock-Box Agreement; and
(c) each Originator shall (i) perform all of its obligations hereunder
and under the Contracts related to the Pool Receivables and Related Rights (and
under its agreements with the Lock-Box Banks) to the same extent as if the Pool
Receivables and Related Rights had not been sold hereunder, and the exercise by
the Initial Purchaser or its designee or assignee of the Initial Purchaser's
rights hereunder or in connection herewith shall not relieve such Originator
from such obligations and (ii) pay when due any taxes, including, without
limitation, any sales taxes payable in connection with the Pool Receivables and
their creation and satisfaction. Notwithstanding anything to the contrary in
this Agreement, none of the Initial Purchaser, the Administrator or the
Purchaser shall have any obligation or liability with respect to any Receivable
or Related Rights nor shall any of them be obligated to perform any of the
obligations of any Originator under any of the foregoing.
SECTION VIII.4. Further Action Evidencing Purchases. Each Originator
agrees that from time to time, at its expense, it will promptly execute and
deliver all further instruments and documents, and take all further action, in
order to perfect, protect or more fully evidence the purchase of the Pool
Receivables and the Related Rights by the Initial Purchaser hereunder, or to
enable the Initial Purchaser to exercise or enforce any of its rights hereunder
or under any other Transaction Document. Each Originator further agrees from
time to time, at its expense, promptly to take all action that the Initial
Purchaser, the Servicer or the Administrator may reasonably request in order to
perfect, protect or more fully evidence such purchase of the Pool Receivables
and the Related Rights or to enable the Initial Purchaser or the Purchaser (as
assignee of the Initial Purchaser) or the Administrator to exercise or enforce
any of its or their respective rights hereunder or under any other Transaction
Document in respect of the Pool Receivables and the Related Rights. Without
limiting the generality of the foregoing each Originator will:
(a) execute and file such financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as the Initial Purchaser or the Administrator may reasonably determine
to be necessary or appropriate; and
(b) to the extent reasonably practicable, mark the master data
processing records evidencing the Pool Receivables and, if requested by the
Initial Purchaser or the Administrator, to the extent reasonably practicable,
legend the related Contracts, to reflect the sale of the Pool Receivables and
Related Rights pursuant to this Agreement and the Receivables Purchase
Agreement.
Each Originator hereby authorizes the Initial Purchaser or its designee
or assignee to file one or more financing or continuation statements, and
amendments thereto and assignments
<PAGE> 31
thereof, relative to all or any of the Pool Receivables and Related Rights of
such Originator, in each case whether now existing or hereafter generated. If an
Originator fails to perform any of its agreements or obligations under this
Agreement, the Initial Purchaser or its designee or assignee may (but shall not
be required to) itself perform, or cause performance of, such agreement or
obligation, and the reasonable expenses of the Initial Purchaser or its designee
or assignee incurred in connection therewith shall be payable by the Originator
under Section 7.1.
ARTICLE IX
MISCELLANEOUS
SECTION IX.1. Amendments, Etc. No amendment or waiver of any provision
of this Agreement or consent to any departure by any Originator therefrom shall
be effective unless in a writing signed by the Initial Purchaser, and consented
to in writing by the Administrator, and any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No failure on the part of the Initial Purchaser or the Administrator to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.
SECTION IX.2. Notices, Etc. All notices and other communications
provided for hereunder shall, unless otherwise expressly stated herein, be in
writing (including facsimile communication) and shall be personally delivered or
sent by certified mail, postage prepaid, or by facsimile, to the intended party
at the address or facsimile number of such party set forth under its name on
Schedule 9.2 hereto or at such other address or Telex or facsimile number as
shall be designated by such party in a written notice to the other parties
hereto. All such notices and communications shall be effective, (a) if
personally delivered, when received, (b) if sent by certified mail, three (3)
Business Days after having been deposited in the mail, postage prepaid, (c) if
sent by overnight courier, one (1) Business Day after having been given to such
courier, and (d) if transmitted by facsimile, when sent, receipt confirmed by
telephone or electronic means.
SECTION IX.3. Acknowledgment and Consent.
(a) Each of Maxtor, as an Originator and as initial Servicer, and each
other Originator acknowledges that, contemporaneously herewith or at any time
hereafter, the Initial Purchaser is assigning or will assign to the
Administrator, for the benefit of the Purchaser, pursuant to the Receivables
Purchase Agreement, one or more undivided interests in all of the Initial
Purchaser's rights, title and interest in, to and under the Pool Receivables and
Related Rights, and all of the Initial Purchaser's right, title and interest in,
to and under this Agreement, it being understood that such assignment shall not
relieve any party hereto from (or require the Purchaser or the
<PAGE> 32
Administrator to undertake) the performance of any term, covenant or agreement
on the part of any party hereto to be performed or observed under or in
connection with this Agreement. Each of Maxtor, as Originator and as initial
Servicer, and each other Originator hereby consents to such assignments,
including, without limitation, the assignment by the Initial Purchaser of (i)
the right of the Initial Purchaser, at any time, to enforce this Agreement
against the Originators and the obligations of the Originators hereunder, (ii)
the right to appoint a successor to the Servicer as set forth in the Receivables
Purchase Agreement, (iii) the right, at any time, to give or withhold any and
all consents, requests, notices, directions, approvals, demands, extensions or
waivers under or with respect to this Agreement, any other Transaction Document
or the obligations in respect of the Originators thereunder to the same extent
as the Initial Purchaser may do, and (iv) all of the Initial Purchaser's rights,
remedies, powers and privileges, and all claims of the Initial Purchaser against
each Originator, under or with respect to this Agreement and the other
Transaction Documents (whether arising pursuant to the terms of this Agreement
or otherwise available at law or in equity). Each of the parties hereto
acknowledges and agrees that the Purchaser, the Administrator and the other
Indemnified Parties are third party beneficiaries of the rights of the Initial
Purchaser arising hereunder and under the other Transaction Documents to which
any Originator is a party.
(b) Each Originator hereby agrees to execute all agreements, instruments
and documents, and to take all other action, that the Initial Purchaser or the
Administrator determines is necessary or reasonably desirable to evidence its
consent described in Section 9.3(a).
(c) Each Originator hereby acknowledges that its obligations to the
Purchaser and the Administrator as assignees of the Initial Purchaser are and
shall be, to the extent permitted by Applicable Law or not prohibited by any
order of any court or administrative or regulatory authority, absolute and
unconditional under any and all circumstances and shall be unaffected by any
claims, offsets or other defenses such Originator may have against the Initial
Purchaser, and each Originator agrees that it shall not assert or interpose any
such claims, offsets or defenses as a defense to its performance of its
obligations under the Transaction Documents to which it is a party.
SECTION IX.4. Binding Effect; Assignability. This Agreement shall be
binding upon and inure to the benefit of the Initial Purchaser, each Originator
and their respective successors and permitted assigns. No Originator may assign
its rights hereunder or any interest herein without the prior written consent of
the Initial Purchaser, the Administrator and the Liquidity Agent; subject to
Section 9.3, the Initial Purchaser may not assign its rights hereunder or any
interest herein without the prior written consent of Maxtor, the Administrator
and the Liquidity Agent. This Agreement shall create and constitute the
continuing obligations of the parties hereto in accordance with its terms, and
shall remain in full force and effect until the date after the Sale Termination
Date on which each Originator has received payment in full for all of its
Receivables and Related Rights conveyed pursuant to Section 1.1 hereof and has
paid and performed all of its obligations hereunder in full. The rights and
remedies with respect to any breach of any representation and warranty made by
<PAGE> 33
any Originator pursuant to Article V shall be continuing and shall survive any
termination of this Agreement.
SECTION IX.5. Costs, Expenses and Taxes. In addition to the rights of
indemnification granted under Article VII, each Originator, jointly and
severally, agrees to pay on demand all costs and expenses in connection with the
preparation, execution, delivery and administration (including, without
limitation, but subject to the proviso to Section 6.1(c), periodic auditing of
Pool Receivables) of this Agreement and the other Transaction Documents, and any
amendment, modification or waiver of or consent to any of the foregoing,
including, without limitation, attorneys' fees for the Administrator, the
Initial Purchaser and their respective Affiliates and agents with respect
thereto and with respect to advising the Administrator, the Initial Purchaser
and their respective Affiliates and agents as to their rights and remedies under
this Agreement and the other Transaction Documents, and all costs and expenses,
if any (including, without limitation, attorneys' fees (including the allocated
fees of in-house counsel)), of the Administrator, the Initial Purchaser and
their respective Affiliates and agents, in connection with the enforcement of
this Agreement and the other Transaction Documents.
SECTION IX.6. No Proceedings; Limitation on Payments.
(a) Each Originator hereby agrees that it will not institute against, or
join any other Person in instituting against, the Initial Purchaser any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding,
or other proceeding under any federal or state bankruptcy or similar law, for
one year and one day after the latest maturing Commercial Paper Note is paid in
full. The foregoing shall not limit any Originator's right to file any claim in
or otherwise take any action with respect to any insolvency proceeding that was
instituted by any Person other than an Originator.
(b) Notwithstanding any provisions contained in this Agreement to the
contrary, the Initial Purchaser shall not, and shall not be obligated to, pay
any amount pursuant to this Agreement unless the Initial Purchaser has excess
cash flow from operations or has received funds with respect to such obligation
which may be used to make such payment and, in each case, such payment is
permitted by the Receivables Purchase Agreement.
<PAGE> 34
SECTION IX.7. GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION (OR THE
EFFECT OF PERFECTION OR NON-PERFECTION) OF THE INTERESTS OF THE INITIAL
PURCHASER IN THE POOL RECEIVABLES AND THE RELATED RIGHTS IS GOVERNED BY THE LAWS
OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY UNITED STATES FEDERAL
COURT, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES
HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY TRANSACTION DOCUMENT. EACH
PARTY HERETO WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,
WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.
SECTION IX.8. Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original and all of which when taken together shall constitute one and the
same agreement.
SECTION IX.9. Survival of Termination. The provisions of Section 1.4,
Article VII, Section 9.3, Section 9.5, Section 9.6, Section 9.7, Section 9.10
and this Section 9.9 shall survive any termination of this Agreement.
SECTION IX.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ITS
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
<PAGE> 35
CLAIMS, OR OTHERWISE. EACH PARTY HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF
ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, EACH OF THE PARTIES HERETO FURTHER AGREES THAT ITS RESPECTIVE RIGHT
TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY OTHER TRANSACTION
DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
SECTION IX.11. Entire Agreement. This Agreement and the other
Transaction Documents embodies the entire agreement and understanding of the
parties hereto, and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof. The Exhibits, Schedules and Annexes to this Agreement
shall be deemed incorporated by reference into this Agreement as if set forth
herein.
SECTION IX.12. Headings. The captions and headings of this Agreement and
in any Exhibit hereto are for convenience of reference only and shall not affect
the interpretation hereof or thereof.
<PAGE> 36
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 Originator and as
an initial Servicer
By:
---------------------------------------
Name:
--------------------------------------
Title:
------------------------------------
MAXTOR RECEIVABLES CORPORATION, as
Initial Purchaser
By:
---------------------------------------
Name:
--------------------------------------
Title:
------------------------------------
PURCHASE AND
SALE AGREEMENT
<PAGE> 37
SCHEDULE I
LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS
Lock-Box Bank Lock-Box Account
First Union National Bank Account No. 0109-7086
1345 Chestnut Street
Philadelphia, PA 19101-7618
Attention: Jeffrey Levy
<PAGE> 38
EXHIBIT A
FORM OF PURCHASE REPORT
PURCHASE REPORT
Maxtor Corporation
Maxtor Receivables Corporation
As of ______________________________
<TABLE>
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Cut-Off Date
--------------------------------------
<S> <C> <C> <C>
Total Receivables UPB $ - Input
Initial Contributed Receivables $ Fixed
Aggregate Unpaid Balance of Receivables AUB $ Calculated
LIBOR 0.0000% Input
Days Sales Outstanding TD 0 Input
12 Month Losses $ - Input
12 Month Collections $ - Input
Purchaser's Total Investment PTI $ Fixed
Cost Rate (LIBOR +1.50%) CR Calculated
Cost Discount (TD/360)*CR CD 0 Calculated
Loss Discount (12 Month Losses/12 Month Coll) LD #DIV/0! Calculated
Fair Market Value Discount (LD+CD) FMVD #DIV/0! Calculated
Purchase Price (AUB-(AUB*FMVD)) PP #DIV/0! Calculated
Eligible Receivables $ - Input
Ineligible Receivables $ - Input
</TABLE>
<PAGE> 39
EXHIBIT B
FORM OF INITIAL PURCHASER NOTE
NON-NEGOTIABLE PROMISSORY NOTE
July 31, 1998
FOR VALUE RECEIVED, the undersigned, MAXTOR RECEIVABLES CORPORATION, a
California corporation (the "Initial Purchaser"), promises to pay to [NAME OF
ORIGINATOR], a ___________________ corporation (the "Originator"), at its office
at __________________________________________ , on the terms and subject to the
conditions set forth herein and in the Purchase and Sale Agreement referred to
below, the aggregate unpaid Purchase Price of all Pool Receivables and Related
Rights of the Originator purchased and to be purchased by the Initial Purchaser
pursuant to the Purchase and Sale Agreement (subject to adjustment pursuant to
Section 3.3 of such Purchase and Sale Agreement). Such amount as shown in the
records of the Servicer will be rebuttable presumptive evidence of the principal
amount owing under this Note.
1. Purchase and Sale Agreement. This Note is an "Initial Purchaser Note"
described in, and is subject to the terms and conditions set forth in, that
certain Purchase and Sale Agreement, dated as of July 31, 1998 (as the same may
be amended, supplemented, or otherwise modified in accordance with its terms,
the "Purchase and Sale Agreement"), among the Originator and the Initial
Purchaser. Reference is hereby made to the Purchase and Sale Agreement for a
statement of certain other rights and obligations of the Initial Purchaser and
the Originator. In the case of any conflict between the terms of this Note and
the terms of the Purchase and Sale Agreement, the terms of the Purchase and Sale
Agreement shall control.
2. Definitions. Capitalized terms used (but not defined) herein have the
meanings ascribed thereto in the Purchase and Sale Agreement. In addition, as
used herein, the following terms have the following meanings:
"Final Maturity Date" means the date that falls ninety one (91)
days after the later of (x) the Sale Termination Date and (y) the Final
Payout Date.
"Junior Liabilities" means all obligations of the Initial
Purchaser to the Originator under this Note.
"Senior Agent" means the Administrator.
"Senior Interests" means (a) the undivided percentage ownership
interests acquired by the Administrator pursuant to the Receivables
Purchase Agreement, and (b) all obligations of the Initial Purchaser to
the Senior Interest Holders, howsoever
<PAGE> 40
created, arising or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing, or due or to become due on or
before the Final Maturity Date.
"Senior Interest Holders" means, collectively, the Purchaser, the
Administrator and the other Indemnified Parties.
"Subordination Provisions" means, collectively, clauses (a)
through (k) of Section 7 hereof.
3. Interest. Subject to the Subordination Provisions, the Initial
Purchaser promises to pay interest on the aggregate unpaid principal amount of
this Note outstanding on each day (a) prior to the final payment in full and in
cash of the Senior Interests, at a variable rate per annum equal to the Earned
Discount Rate Percentage, determined as of the then most recent Reporting Date,
and (b) after such final payment, at a variable rate per annum equal to the
Alternate Base Rate, as determined by the Servicer.
4. Interest Payment Dates. Subject to the Subordination Provisions, the
Initial Purchaser shall pay accrued interest on this Note on each Settlement
Date and on the Final Maturity Date (or, if any such day is not a Business Day,
the next succeeding Business Day). The Initial Purchaser also shall pay accrued
interest on the principal amount of each prepayment hereof on the date of each
such prepayment.
5. Basis of Computation. Interest accrued hereunder shall be computed
for the actual number of days elapsed on the basis of a 360-day year.
6. Principal Payment Dates. Subject to the Subordination Provisions, any
unpaid principal of this Note shall be paid on the Final Maturity Date (or, if
such date is not a Business Day, the next succeeding Business Day). Subject to
the Subordination Provisions, the principal amount of and accrued interest on
this Note may be prepaid on any Business Day without premium or penalty.
7. Subordination Provisions. The Initial Purchaser covenants and agrees,
and the Originator, by its acceptance of this Note, likewise covenants and
agrees, that the payment of all Junior Liabilities is hereby expressly
subordinated in right of payment to the payment and performance of the Senior
Interests to the extent and in the manner set forth in the following clauses of
this Section 7:
(a No payment or other distribution of the Initial Purchaser's
assets of any kind or character, whether in cash, securities, or other
rights or property, shall be made on account of this Note except to the
extent such payment or other distribution is (i) permitted under the
Receivables Purchase Agreement or (ii) made pursuant to Sections 4 or 6
of this Note;
<PAGE> 41
(b (i) In the event of any Event of Bankruptcy involving the
Initial Purchaser, and (ii) on and after the occurrence of the Sale
Termination Date, the Senior Interests shall first be paid and performed
in full and in cash before the Originator shall be entitled to receive
and to retain any payment or distribution in respect of the Junior
Liabilities. In order to implement the foregoing: (x) all payments and
distributions of any kind or character in respect of the Junior
Liabilities to which the Originator would be entitled except for this
subsection 7(b) shall be made directly to the Senior Agent (for the
benefit of the Senior Interest Holders); and (y) the Originator hereby
irrevocably agrees that the Senior Agent, in the name of the Originator
or otherwise, may demand, sue for, collect, receive and receipt for any
and all such payments or distributions, and file, prove and vote or
consent in any such proceeding with respect to any and all claims of the
Originator relating to the Junior Liabilities, in each case until the
Senior Interests shall have been paid and performed in full and in cash.
(c In the event that the Originator receives any payment or other
distribution of any kind or character from the Initial Purchaser or from
any other source whatsoever, in respect of the Junior Liabilities, other
than as expressly permitted by the terms of this Note, such payment or
other distribution shall be received in trust for the Senior Interest
Holders and shall be turned over by the Originator to the Senior Agent
(for the benefit of the Senior Interest Holders) forthwith until the
Senior Interests have been paid in full. All payments and distributions
received by the Senior Agent in respect of this Note, to the extent
received in or converted into cash, may be applied by the Senior Agent
(for the benefit of the Senior Interest Holders) first to the payment of
any and all reasonable expenses (including, without limitation,
reasonable attorneys' fees and other legal expenses) paid or incurred by
the Senior Agent or the Senior Interest Holders in enforcing these
Subordination Provisions, or in endeavoring to collect or realize upon
the Junior Liabilities, and any balance thereof shall, solely as between
the Originator and the Senior Interest Holders, be applied by the Senior
Agent toward the payment of the Senior Interests in a manner determined
by the Senior Agent to be in accordance with the Receivables Purchase
Agreement; but as between the Initial Purchaser and its creditors, no
such payments or distributions of any kind or character shall be deemed
to be payments or distributions in respect of the Senior Interests.
(d Upon the final payment in full and in cash of all Senior
Interests, the Originator shall be subrogated to the rights of the
Senior Interest Holders to receive payments or distributions from the
Initial Purchaser that are applicable to the Senior Interests until the
Junior Liabilities are paid in full.
(e These Subordination Provisions are intended solely for the
purpose of defining the relative rights of the Originator, on the one
hand, and the Senior
<PAGE> 42
Interest Holders, on the other hand. Nothing contained in the
Subordination Provisions or elsewhere in this Note is intended to or
shall impair, as between the Initial Purchaser, its creditors (other
than the Senior Interest Holders) and the Originator, the Initial
Purchaser's obligation, which is unconditional and absolute, to pay the
Junior Liabilities as and when the same shall become due and payable in
accordance with the terms hereof and of the Purchase and Sale Agreement
or to affect the relative rights of the Originator and creditors of the
Initial Purchaser (other than the Senior Interest Holders).
(f The Originator shall not, until the Senior Interests have been
finally paid and performed in full and in cash, (i) cancel, waive,
forgive, transfer or assign, or commence legal proceedings to enforce or
collect, or subordinate to any obligation of the Initial Purchaser,
howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, or now or hereafter existing, or due or to
become due, other than the Senior Interests, the Junior Liabilities, or
any rights in respect thereof or (ii) convert the Junior Liabilities
into an equity interest in the Initial Purchaser, unless, in the case of
each of clauses (i) and (ii) above, the Originator shall have received
the prior written consent of the Administrator in each case.
(g The Originator shall not, without the advance written consent
of the Administrator, commence, or join with any other Person in
commencing, any proceedings related to an Event of Bankruptcy with
respect to the Initial Purchaser until at least one year and one day
shall have passed since the Senior Interests shall have been finally
paid and performed in full and in cash.
(h If, at any time, any payment (in whole or in part) made with
respect to any Senior Interest is rescinded or must be restored or
returned by a Senior Interest Holder (whether in connection with any
Event of Bankruptcy or otherwise), these Subordination Provisions shall
continue to be effective or shall be reinstated, as the case may be, as
though such payment had not been made.
(i Each of the Senior Interest Holders may, from time to time, at
its sole discretion, without notice to the Originator, and without
waiving any of its rights under these Subordination Provisions, take any
or all of the following actions: (i) retain or obtain an interest in any
property to secure any of the Senior Interests; (ii) retain or obtain
the primary or secondary obligations of any other obligor or obligors
with respect to any of the Senior Interests; (iii) extend or renew for
one or more periods (whether or not longer than the original period),
alter or exchange any of the Senior Interests, or release or compromise
any obligation of any nature with respect to any of the Senior
Interests; (iv) amend, supplement, or otherwise modify any Transaction
Document; and (v) release its security interest in, or surrender,
release or permit any substitution or exchange for all or any part of
any rights or property securing any of the Senior Interests, or extend
or renew for one or more
<PAGE> 43
periods (whether or not longer than the original period), or release,
compromise, alter or exchange any obligations of any nature of any
obligor with respect to any such rights or property.
(j The Originator hereby waives: (i) notice of acceptance of
these Subordination Provisions by any of the Senior Interest Holders;
(ii) notice of the existence, creation, non-payment or non-performance
of all or any of the Senior Interests; and (iii) all diligence in
enforcement, collection or protection of, or realization upon the Senior
Interests, or any thereof, or any security therefor.
(k These Subordination Provisions constitute a continuing offer
from the Initial Purchaser to all Persons who become the holders of, or
who continue to hold, Senior Interests; and these Subordination
Provisions are made for the benefit of the Senior Interest Holders, and
the Administrator may proceed to enforce such provisions on behalf of
each of such Persons.
8. Amendments, Etc. No failure or delay on the part of the Originator in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
No amendment, modification or waiver of, or consent with respect to, any
provision of this Note shall in any event be effective unless (a) the same shall
be in writing and signed and delivered by the Initial Purchaser and the
Originator, and (b) all consents required for such actions under the Transaction
Documents shall have been received by the appropriate Persons.
9. Limitation on Interest. Notwithstanding anything in this Note to the
contrary, the Initial Purchaser shall never be required to pay unearned interest
on any amount outstanding hereunder, and shall never be required to pay interest
on the principal amount outstanding hereunder, at a rate in excess of the
maximum interest rate that may be contracted for, charged or received without
violating applicable federal or state law.
10. No Negotiation. This Note is not negotiable.
11. GOVERNING LAW. THIS NOTE SHALL GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF).
12. Captions. Paragraph captions used in this Note are provided solely
for convenience of reference only and shall not affect the meaning or
interpretation of any provision of this Note.
<PAGE> 44
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
by its officer thereunto duly authorized on the date first above written.
MAXTOR RECEIVABLES
CORPORATION
By:
------------------------------
Title:
---------------------------
<PAGE> 45
EXHIBIT C
FORM OF ORIGINATOR NOTE
DEMAND NOTE
July 31, 1998
The undersigned, [NAME OF ORIGINATOR], a ___________________ corporation
(the "Originator"), for value received, promises to pay to the order of MAXTOR
RECEIVABLES CORPORATION, a California corporation (the "Initial Purchaser"), ON
DEMAND, the aggregate unpaid principal amount of all loans made by the Initial
Purchaser to the Originator (the "Originator Loans") together with accrued
interest on such amounts from time to time outstanding hereunder at the rate
provided below. Such amounts as shown in the records of the Servicer (as such
term is defined in the Purchase and Sale Agreement referred to below) will be
rebuttable presumptive evidence of the principal amount owing under this Demand
Note.
The unpaid principal amount of each Originator Loan from time to time
outstanding shall bear interest (which also shall be payable ON DEMAND) from
(and including) the date on which such Originator Loan was made to (but
excluding) the date on which such Originator Loan is paid in full (a) prior to
the final payment in full and in cash of the Senior Interests (as such term is
defined in the Initial Purchaser Note), at a variable rate per annum equal to
the Earned Discount Rate Percentage, determined as of the then most recent
Payment Date, and (b) after such final payment, at a variable rate per annum
equal to the Alternative Base Rate, as determined by the Servicer. Interest
hereunder shall be computed for the actual number of days elapsed on the basis
of a year consisting of 360 days.
This Demand Note is an Originator Note described in, and is subject to
the terms and conditions set forth in, that certain Purchase and Sale Agreement,
dated as of July 31, 1998 (as the same may at any time be amended, supplemented,
or otherwise modified from time to time in accordance with its terms, the
"Purchase and Sale Agreement"), between the Initial Purchaser and the
Originator. Reference is hereby made to the Purchase and Sale Agreement for a
statement of certain other rights and obligations of the Initial Purchaser. All
capitalized terms used but not otherwise defined herein have the meanings
assigned thereto in the Purchase and Sale 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 Servicer to the Initial Purchaser.
In addition to and not in limitation of the foregoing, the Originator
further agrees, subject to any limitation imposed by applicable law, to pay all
expenses, including without
C-1
<PAGE> 46
limitation reasonable attorney fees, 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 the Initial Purchaser 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 the Originator
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 Transaction Documents shall have been given
by the appropriate Persons.
Upon the occurrence of any Event of Bankruptcy with respect to the
Originator, the principal balance hereof and all interest accrued hereon shall
be immediately due and payable, without demand, presentment, protest or notice
of dishonor.
Notwithstanding anything in this Demand Note to the contrary, the
Originator shall never be required to pay unearned interest on any amount
outstanding hereunder, and shall never be required to pay interest on the
principal amount outstanding hereunder, at a rate in excess of the maximum
nonusurious interest rate that may be contracted for, charged or received under
applicable federal or state law.
THIS DEMAND NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF).
[NAME OF ORIGINATOR]
By:
------------------------------
Title:
---------------------------
C-2
<PAGE> 47
PAY TO THE ORDER OF Fleet National Bank, as Administrator, pursuant to that
certain Receivables Purchase Agreement dated as of July 31, 1998, as the same
may be further amended, supplemented, or otherwise modified from time to time.
MAXTOR RECEIVABLES CORPORATION
By:
------------------------------
Title:
---------------------------
C-3
<PAGE> 1
EXHIBIT 10.169
RECEIVABLES PURCHASE AGREEMENT
Dated as of July 31, 1998
Among
MAXTOR RECEIVABLES CORPORATION
as Seller
and
MAXTOR CORPORATION
as initial Servicer
and
BLUE KEEL FUNDING, LLC
as Purchaser
and
FLEET NATIONAL BANK
as Administrator
<PAGE> 2
TABLE OF CONTENTS
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Page
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ARTICLE I
PURCHASES AND REINVESTMENTS
SECTION 1.01. Commitment to Purchase; Limits on Purchaser's Obligations ...........2
SECTION 1.02. Purchase Procedures; Assignment of Purchaser's Interests ............2
SECTION 1.03. Reinvestments of Certain Collections; Payment of Remaining
Collections..........................................................2
SECTION 1.04. Asset Interest.......................................................3
SECTION 1.05. Voluntary Termination of Purchase and Reinvestment
Obligations or Reduction of Purchase Limit...........................4
SECTION 1.06. Post Closing Audit...................................................4
ARTICLE II
COMPUTATIONAL RULES
SECTION 2.01. Computation of Capital...............................................5
SECTION 2.02. Computation of Concentration Limit...................................5
SECTION 2.03. Computation of Earned Discount.......................................5
SECTION 2.04. Estimates of Earned Discount Rate, Fees, Etc.........................5
ARTICLE III
SETTLEMENTS
SECTION 3.01. Settlement Procedures................................................6
SECTION 3.02. Deemed Collections; Reduction of Capital, Etc........................8
SECTION 3.03. Payments and Computations, Etc.......................................9
ARTICLE IV
FEES AND YIELD PROTECTION
SECTION 4.01. Fees................................................................10
SECTION 4.02. Yield Protection....................................................10
SECTION 4.03. Funding Losses......................................................12
ARTICLE V
CONDITIONS TO PURCHASES
SECTION 5.01. Conditions Precedent to Initial Purchase............................12
SECTION 5.02. Conditions Precedent to All Purchases and Reinvestments ............14
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties of Seller............................15
SECTION 6.02. Representations and Warranties of Parent............................18
ARTICLE VII
GENERAL COVENANTS
SECTION 7.01. Affirmative Covenants...............................................19
SECTION 7.02. Reporting Requirements..............................................21
SECTION 7.03. Negative Covenants..................................................23
SECTION 7.04. Separate Existence..................................................24
</TABLE>
ii
<PAGE> 3
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ARTICLE VIII
ADMINISTRATION AND COLLECTION
SECTION 8.01. Designation of Servicer.............................................26
SECTION 8.02. Duties of Servicer..................................................27
SECTION 8.03. Rights of the Administrator.........................................29
SECTION 8.04. Responsibilities of Seller..........................................30
SECTION 8.05. Further Action Evidencing Purchases and Reinvestments ..............30
SECTION 8.06. Application of Collections..........................................31
ARTICLE IX
SECURITY INTEREST
SECTION 9.01. Grant of Security Interest..........................................31
SECTION 9.02. Further Assurances..................................................31
SECTION 9.03. Remedies............................................................32
ARTICLE X
LIQUIDATION EVENTS
SECTION 10.01. Liquidation Events..................................................32
SECTION 10.02. Remedies............................................................34
ARTICLE XI
THE ADMINISTRATOR
SECTION 11.01. Authorization and Action............................................35
SECTION 11.02. Administrator's Reliance, Etc.......................................35
SECTION 11.03. Fleet and Affiliates................................................35
ARTICLE XII
ASSIGNMENT OF PURCHASER'S INTEREST
SECTION 12.01. Restrictions on Assignments.........................................36
SECTION 12.02. Rights of Assignee..................................................36
ARTICLE XIII
INDEMNIFICATION
SECTION 13.01. Indemnities.........................................................36
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. Amendments, Etc.....................................................39
SECTION 14.02. Notices, Etc........................................................39
SECTION 14.03. No Waiver; Remedies.................................................39
SECTION 14.04. Binding Effect; Survival............................................39
SECTION 14.05. Costs, Expenses and Taxes...........................................40
SECTION 14.06. No Proceedings......................................................40
SECTION 14.07. Confidentiality of Program Information..............................40
SECTION 14.08. Confidentiality of Parent Information...............................42
SECTION 14.09. Captions and Cross References.......................................43
SECTION 14.10. Integration.........................................................43
SECTION 14.11. Governing Law.......................................................43
SECTION 14.12. Waiver Of Jury Trial................................................44
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iii
<PAGE> 4
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SECTION 14.13. Consent To Jurisdiction; Waiver Of Immunities.......................44
SECTION 14.14. Execution in Counterparts...........................................45
SECTION 14.15. No Recourse Against Other Parties...................................45
</TABLE>
iv
<PAGE> 5
APPENDICES
APPENDIX A Definitions
SCHEDULES
SCHEDULE 6.01(m) List of Offices of Seller where Records Are Kept
SCHEDULE 6.01(n) List of Lock-Box Banks
SCHEDULE 7.01(e) Forms of Contracts
SCHEDULE 7.01(g) Description of Credit and Collection Policy
SCHEDULE 14.02 Notice Addresses
EXHIBITS
EXHIBIT 1.02(a) Form of Purchase Notice
EXHIBIT 3.01 Form of Servicer Report
EXHIBIT 5.01(g)-1 Form of In-House Counsel Opinion
EXHIBIT 5.01(g)-2 Form of Enforceability Opinion
EXHIBIT 5.01(g)-3 Form of True Sale Opinion
EXHIBIT 5.01(g)-4 Form of Substantive Consolidation Opinion
EXHIBIT 5.01 Form of Lock-Box Agreement
v
<PAGE> 6
RECEIVABLES PURCHASE AGREEMENT
Dated as of July 31, 1998
THIS IS A RECEIVABLES PURCHASE AGREEMENT, among MAXTOR RECEIVABLES
CORPORATION, a California corporation ("Seller"), MAXTOR CORPORATION, a Delaware
corporation ("Parent"), as initial Servicer, BLUE KEEL FUNDING, LLC, a Delaware
limited liability company ("Purchaser"), and FLEET NATIONAL BANK, a national
banking association ("Fleet"), as administrator for Purchaser (in such capacity,
the "Administrator"). Unless otherwise indicated, capitalized terms used in this
Agreement are defined in Appendix A.
Background
1. Parent is engaged in the business of manufacturing hard disk
drives.
2. Seller is a single purpose corporation formed for the purpose of
purchasing, and accepting contributions of, Receivables generated by Parent or
other Originator in the ordinary course of its business.
3. Seller has, and expects to have, Pool Receivables in which
Seller intends to sell an undivided interest. Seller has requested Purchaser to,
and Purchaser shall, subject to the terms and conditions contained in this
Agreement, fund the purchase of such undivided interest, referred to herein as
the Asset Interest, from Seller from time to time during the term of this
Agreement.
4. Seller and Purchaser also desire that, subject to the terms and
conditions of this Agreement, certain of the daily Collections in respect of the
Asset Interest be reinvested in Pool Receivables, which reinvestment shall
constitute part of the Asset Interest.
5. Parent has been requested, and is willing, to act as initial
Servicer.
6. Fleet has been requested, and is willing, to act as the
Administrator.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
<PAGE> 7
ARTICLE I
PURCHASES AND REINVESTMENTS
SECTION 1.01. Commitment to Purchase; Limits on Purchaser's Obligations.
Upon the terms and subject to the conditions of this Agreement, from time to
time prior to the Termination Date, Seller may request that Administrator, for
the benefit of Purchaser, purchase from Seller an undivided ownership interest
in the Pool Assets (each being a "Purchase") and Purchaser shall fund such
Purchase; provided that no Purchase shall be funded by Purchaser if, after
giving effect thereto, either (a) the then Capital would exceed an amount equal
to $200,000,000 (the "Purchase Limit"), as such amount may be decreased from
time to time as provided in Section 1.05, or (b) the Asset Interest would exceed
100% (the "Allocation Limit"); and provided further that each Purchase made
pursuant to this Section 1.01 shall have a purchase price of at least
$1,000,000.
SECTION 1.02. Purchase Procedures; Assignment of Purchaser's Interests.
(a) Notice of Purchase. Each Purchase from Seller shall be made on
notice from Seller to the Administrator received by the Administrator not later
than 11:00 a.m. (San Francisco, California, time) on the second Business Day
next preceding the date of such proposed Purchase. Each such notice of a
proposed Purchase shall be substantially in the form of Exhibit 1.02(a) (each a
"Purchase Notice"), and shall specify the desired amount and date of such
Purchase, which shall be a Settlement Date.
(b) Funding of Purchase. On the date of each Purchase, Purchaser shall,
upon satisfaction of the applicable conditions set forth in Article V, make
available to the Administrator at the Administrator's Office the amount of its
Purchase in immediately available funds, and after receipt by the Administrator
of such funds, the Administrator will make such funds immediately available to
Seller at such office.
(c) Assignment of Asset Interest. Seller hereby sells, assigns and
transfers to Administrator, for the benefit of Purchaser, the Asset Interest.
(d) First Purchase. Purchaser shall use the proceeds of the first
Purchase, to the extent necessary, to pay all outstanding amounts owed to
Corporate Receivables Corporation in order to effect the repurchase of the
Receivables existing on the date of such Purchase from Corporate Receivables
Corporation pursuant to the Repurchase Agreement.
SECTION 1.03. Reinvestments of Certain Collections; Payment of Remaining
Collections. (a) On the close of business on each day during the period from the
date hereof to the Termination Date, Servicer will, out of all Collections
received on such day:
(i) determine the portion of Collections attributable on any day
to the Asset Interest by multiplying (x) the amount of all Collections
times (y) the Asset Interest;
-2-
<PAGE> 8
(ii) out of the portion of Collections allocated to the Asset
Interest pursuant to clause (i), set aside and hold in trust for
Purchaser an amount equal to the sum of the estimated amount of Earned
Discount accrued in respect of the Capital (based on rate information
provided by the Administrator pursuant to Section 2.04), the accrued
Fees, all other amounts due to Purchaser, the Administrator, the
Affected Parties or the Indemnified Parties hereunder (other than the
Capital) and the Purchaser's Share of the Servicer's Fee (in each case,
accrued through such day) and not so previously set aside; provided that
unless the Administrator shall request it to do so in writing, Servicer
shall not be required to hold Collections that have been set-aside in a
separate deposit account containing only such Collections;
(iii) apply the Collections allocated to the Asset Interest
pursuant to clause (i) and not set aside pursuant to clause (ii) to the
purchase from Seller of ownership interests in Pool Assets (each such
purchase being a "Reinvestment"); provided that (A) if the Excess Amount
exceeds zero, then Servicer shall not reinvest, but shall set aside and
hold for the benefit of Purchaser, a portion of such Collections which,
together with other Collections previously set aside and then so held,
shall equal the Excess Amount; and (B) if the conditions precedent to
Reinvestment in Section 5.02 are not satisfied, then Servicer shall not
reinvest any of such Collections;
(iv) pay to Seller (A) the portion of Collections not allocated
to the Asset Interest pursuant to clause (i), less the Seller's Share of
the Servicer's Fee, and (B) the Collections applied to Reinvestment
pursuant to clause (iii); and
(v) out of the portion of Collections not allocated to the Asset
Interest pursuant to clause (i), pay to the Servicer the Seller's Share
of the Servicer's Fee accrued through such day.
(b) Unreinvested Collections. Servicer shall set aside and hold in trust
for the benefit of Purchaser all Collections which pursuant to clause (iii) of
Section 1.03(a) may not be reinvested in Pool Assets; provided that unless the
Administrator shall request it to do so in writing, Servicer shall not be
required to hold Collections that have been set-aside in a separate deposit
account containing only such Collections. If, prior to the date when such
Collections are required to be paid to the Administrator pursuant to Section
3.01, the amount of Collections set aside pursuant to clause (iii) of Section
1.03(a) exceeds the Excess Amount, if any, and the conditions precedent to
Reinvestment set forth in Section 5.02 are satisfied, then the Servicer shall
apply such Collections (or, if less, a portion of such Collections equal to the
amount of such excess) to the making of a Reinvestment.
SECTION 1.04. Asset Interest. On any date the Asset Interest will
represent Administrator's (for the benefit of Purchaser) combined undivided
percentage ownership interest in (i) all then outstanding Pool Receivables, (ii)
all Related Security with respect to such Pool Receivables, (iii)
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all of Seller's right and claims under the Purchase Agreement, (iv) all
Collections with respect to, and other proceeds of, the foregoing as at such
date, (v) all lock-boxes and lock-box or collection accounts into which
Collections of Pool Receivables are or may be deposited, and all investments
therein, and (vi) all books and records (including computer disks, tapes and
software) evidencing or relating to any of the foregoing, in each case, whether
now owned by Seller or hereafter acquired or arising, and wherever located (all
of the foregoing, collectively referred to as "Pool Assets").
(b) Computation of Asset Interest. On any date, the Asset Interest will
be equal to a percentage, expressed as the following fraction:
C + RR
------
NPB
where:
C = the then Capital.
RR = the then Required Reserves.
NPB = the then Net Pool Balance;
provided, however, that the Asset Interest, as computed as of the day
immediately preceding the Termination Date, will remain constant at all times on
and after the Termination Date until the Final Payout Date, unless at any time
the Administrator requests a recalculation of the Asset Interest, in which case,
if such recalculated Asset Interest is higher, the Asset Interest shall remain
constant following such recalculation until the Final Payout Date, or, if
earlier, until the date of the next such recalculation of a higher Asset
Interest.
(c) Frequency of Computation. The Asset Interest shall be computed as of
the Cut-Off Date for each Settlement Period. In addition, the Administrator may
require Servicer to provide a Servicer Report for purposes of computing the
Asset Interest as of any other date, and the Servicer agrees to do so within two
Business Days of its receipt of the Administrator's request.
SECTION 1.05. Voluntary Termination of Purchase and Reinvestment
Obligations or Reduction of Purchase Limit. Seller may, upon at least 15 days'
prior written notice to the Administrator, either (a) terminate Purchaser's
commitment to fund Purchases and Reinvestments hereunder, or (b) reduce the
Purchase Limit to an amount not less than $50,000,000; provided, however, that
(i) each partial reduction of the Purchase Limit shall be in an amount equal to
$1,000,000 or an integral multiple thereof, and (ii) after giving effect to such
reduction, the Capital will not exceed the Purchase Limit as so reduced. The
Purchase Limit may be increased upon the request of Seller and the written
consent of the Administrator
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and Purchaser thereto, which consent may be granted or withheld in their sole
discretion and may be subject to such conditions as they may require.
SECTION 1.06. Post Closing Audit. Within 60 days of the first Purchase
hereunder, Fleet shall conduct a review and audit of the Parent's collection,
operating and reporting systems, Credit and Collection Policy, historical
receivables data and accounts, including a review of the Parent's operating
locations and the Eligible Receivables existing on the date of such Purchase;
provided that Parent shall be responsible for the cost of such audit and review
as the one such audit and review in the calender year of 1998, in accordance
with the proviso to each of Section 7.01(c) and Section 6.1(c) of the Purchase
Agreement. In the event that Fleet determines in good faith that as a result of
such review and audit either the Required Reserves, or the calculation or level
of any of the performance ratios of the Receivables, need to be adjusted to
reflect the performance of the Receivables, or Purchaser's risk with respect
thereto, Seller and Parent agree to enter into such amendments hereto as Fleet
may request in good faith to evidence such adjustments.
ARTICLE II
COMPUTATIONAL RULES
SECTION 2.01. Computation of Capital. In making any determination of
Capital, the following rules shall apply:
(a) Capital shall not be considered reduced by any allocation,
setting aside or distribution of any portion of Collections unless such
Collections shall have been actually delivered to the Administrator
pursuant hereto for application to the Capital; and
(b) Capital shall not be considered reduced by any distribution
of any portion of Collections if at any time such distribution is
rescinded or must otherwise be returned for any reason.
SECTION 2.02. Computation of Concentration Limit. In the case of any
Obligor that is an Affiliate of any other Obligor, the Concentration Limit and
the aggregate Unpaid Balance of Pool Receivables of such Obligors shall be
calculated as if such Obligors were one Obligor.
SECTION 2.03. Computation of Earned Discount. In making any
determination of Earned Discount, the following rules shall apply:
(a) no provision of this Agreement shall require the payment or
permit the collection of Earned Discount in excess of the maximum
permitted by Applicable Law; and
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(b) Earned Discount for any period shall not be considered paid
by any distribution if at any time such distribution is rescinded or
must otherwise be returned for any reason.
SECTION 2.04. Estimates of Earned Discount Rate, Fees, Etc. For purposes
of determining the amounts required to be set aside by Servicer pursuant to
Section 1.03, the Administrator shall notify Servicer from time to time of the
Earned Discount Rate applicable to the Capital and the rates at which fees and
other amounts are accruing hereunder. It is understood and agreed that (i) the
Earned Discount Rate may change from time to time, (ii) certain rate information
provided by the Administrator to Servicer shall be based upon the
Administrator's good faith estimate, (iii) the amount of Earned Discount
actually accrued with respect to the Capital during any Settlement Period may
exceed, or be less than, the amount set aside with respect thereto by Servicer,
and (iv) the amount of fees or other payables accrued hereunder with respect to
any Settlement Period may exceed, or be less than, the amount set aside with
respect thereto by Servicer. Failure to set aside any amount so accrued shall
not relieve Servicer of its obligation to remit Collections to the Administrator
with respect to such accrued amount, as and to the extent provided in Section
3.01.
ARTICLE III
SETTLEMENTS
SECTION 3.01. Settlement Procedures.
The parties hereto will take the following actions with respect to each
Settlement Period:
(a) Servicer Report. On or before the sixth Business Day after
each Cut-Off Date (each, a "Reporting Date"), Servicer shall deliver to
the Administrator a report containing the information described in
Exhibit 3.01 (each, a "Servicer Report").
(b) Earned Discount; Other Amounts Due. Two Business Days prior
to each Reporting Date, the Administrator shall notify Servicer of (i)
the amount of Earned Discount that will have accrued in respect of the
Capital as of the next Settlement Date and (ii) all Fees and other
amounts that will have accrued and be payable by Seller under this
Agreement on the next Settlement Date (other than Capital).
(c) Settlement Date Procedure - Reinvestment Period. On the
eighth Business Day after each Cut-Off Date (each, a "Settlement Date")
prior to the Termination Date, the Servicer shall distribute from
Collections set aside pursuant to Sections 1.03(a)(i)
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through (iii) during the immediately preceding Settlement Period the
following amounts in the following order:
(1) to the Administrator, an amount equal to the Earned
Discount accrued during such Settlement Period, plus any
previously accrued Earned Discount not paid on a prior Settlement
Date, which amount shall be distributed by the Administrator to
the Purchaser for application to such Earned Discount;
(2) to the Administrator, an amount equal to the Program
Fee and Commitment Fee accrued during such Settlement Period,
plus any previously accrued amounts described in this clause (2)
not paid on a prior Settlement Date;
(3) to the Servicer, if the Servicer is not Parent, an
amount equal to the Purchaser's Share of the Servicer's Fee
accrued during such Settlement Period, plus any previously
accrued Purchaser's Share of the Servicer's Fee not paid on a
prior Settlement Date;
(4) to the Administrator, all other amounts (other than
Capital) then due under this Agreement to the Administrator, the
Purchaser, the Affected Parties or the Indemnified Parties;
(5) to the Administrator, an amount equal to the Excess
Amount, if any, which amount shall be distributed by the
Administrator to the Purchaser for application to the Capital;
(6) to the Servicer, if the Servicer is Parent, an amount
equal to the Purchaser's Share of the Servicer's Fee accrued
during such Settlement Period, plus any previously accrued
Purchaser's Share of the Servicer's Fee not paid on a prior
Settlement Day; and
(7) to the Seller, any remaining amounts.
(d) Settlement Date Procedure - Liquidation Period. On each Settlement
Date during the Liquidation Period, the Servicer shall distribute from
Purchaser's Share of Collections received or deemed received pursuant to Section
3.02 during the immediately preceding Settlement Period the following amounts in
the following order:
(1) to the Administrator, an amount equal to the Earned
Discount accrued during such Settlement Period, plus any
previously accrued Earned Discount not paid on a prior
Settlement Date, which amount shall be distributed by the
Administrator to the Purchaser for application to such Earned
Discount;
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(2) to the Administrator, an amount equal to the Program
Fee and Commitment Fee accrued during such Settlement Period,
plus any previously accrued Program Fee and Commitment Fee not
paid on a prior Settlement Date;
(3) to the Servicer, if the Servicer is not Parent, an
amount equal to the Purchaser's Share of the Servicer's Fee
accrued during such preceding Settlement Period, plus any
previously accrued Purchaser's Share of the Servicer's Fee not
paid on a prior Settlement Date;
(4) to the Administrator, an amount equal to the
remaining Purchaser's Share of Collections until the Capital is
reduced to zero, which amount shall be distributed by the
Administrator to the Purchaser for application to the Capital;
(5) to the Administrator, all other amounts (other than
Capital) then due under this Agreement to the Administrator, the
Purchaser, the Affected Parties or the Indemnified Parties;
(6) to the Servicer, if the Servicer is Parent, an
amount equal to the Purchaser's Share of the Servicer's Fee
accrued during such Settlement Period, plus any previously
accrued Purchaser's Share of the Servicer's Fee not paid on a
prior Settlement Date; and
(7) to the Seller, any remaining amounts.
(e) Delayed Payment. If on any day described in this Section
3.01, because Collections during the relevant Settlement Period were
less than the aggregate amounts payable, Servicer does not make any
payment otherwise required, the next available Collections in respect of
the Asset Interest shall be applied to such payment, and no Reinvestment
shall be permitted hereunder until such amount payable has been paid in
full.
SECTION 3.02. Deemed Collections; Reduction of Capital, Etc.
(a) Deemed Collections. If on any day
(i) a Dilution occurs or the Unpaid Balance of any Pool
Receivable is less than the amount included in calculating the Net Pool
Balance for purposes of any Servicer Report for any other reason, or
(ii) any of the representations or warranties of Seller set
forth in Section 6.01(k) or (o) with respect to any Pool Receivable were
not true when made with respect to any Pool Receivable, or any of the
representations or warranties of Seller set forth in Section 6.01(k) are
no longer true with respect to any Pool Receivable, or
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(iii) without duplication, Seller receives a Deemed Collection
pursuant to the Purchase Agreement,
then, on such day, Seller shall be deemed to have received a Collection of such
Pool Receivable
(I) in the case of clause (i) above, in the amount of such
Dilution or the difference between the actual Unpaid Balance and
the amount included in calculating such Net Pool Balance, as
applicable; and
(II) in the case of clause (ii) above, in the amount of
the Unpaid Balance of such Pool Receivable; and
(III) in the case of clause (iii) above, in the amount of
such Deemed Collection.
(b) Seller's Optional Reduction of Capital. Seller may at any time elect
to reduce the Capital as follows:
(i) Seller shall give the Administrator at least five (5)
Business Days' prior written notice of such reduction (including the
amount of such proposed reduction and the proposed date on which such
reduction will commence),
(ii) on the proposed date of commencement of such reduction and
on each day thereafter, Servicer shall refrain from reinvesting
Collections pursuant to Section 1.03 until the amount thereof not so
reinvested shall equal the desired amount of reduction, and
(iii) Servicer shall hold such Collections in trust for
Purchaser, pending payment to the Administrator on the next Settlement
Date, as provided in Section 1.03;
provided that,
(A) the amount of any such reduction shall be not less
than $5,000,000, and the Capital after giving effect to such
reduction shall be not less than $50,000,000 (unless Capital
shall thereby be reduced to zero), and
(B) Seller shall use reasonable efforts to attempt to
choose a reduction amount, and the date of commencement thereof,
so that such reduction shall commence and conclude in the same
Settlement Period.
SECTION 3.03. Payments and Computations, Etc.
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(a) Payments. All amounts to be paid or deposited by Seller or Servicer
to the Administrator or any other Person (other than to Seller, Parent or
Servicer) hereunder (other than amounts payable under Section 4.02) shall be
paid or deposited in accordance with the terms hereof no later than 11:00 a.m.
(Boston, Massachusetts time) on the day when due in lawful money of the United
States of America in immediately available funds to the Administrator at ABA#
011 000 138, account # 940 518 9033; attention: Blue Keel.
(b) Late Payments. Seller or Servicer, as applicable, shall, to the
extent permitted by law, pay to Purchaser or the Administrator, as the case may
be, interest on all amounts not paid or deposited when such amount is due
hereunder at 2% per annum above the Alternate Base Rate, payable on demand,
provided, however, that such interest rate shall not at any time exceed the
maximum rate permitted by Applicable Law, and provided, further that such late
interest rate shall not begin to accrue with respect to any payment until such
payment is at least three (3) hours late.
(c) Method of Computation. All computations of interest, Earned Discount
and any fees payable hereunder shall be made on the basis of a year of 360 days
for the actual number of days (including the first day but excluding the last
day) elapsed.
ARTICLE IV
FEES AND YIELD PROTECTION
SECTION 4.01. Fees. Seller shall pay to the Administrator and Purchaser
the fees in the amounts and at the times set forth in the fee letter, dated as
of the date hereof, between the Administrator and Seller (as amended or
supplemented from time to time, the "Fee Letter").
SECTION 4.02. Yield Protection.
(a) If (i) Regulation D or (ii) any Regulatory Change occurring after
the date hereof
(A) shall subject an Affected Party to any tax, duty or other
charge with respect to any Asset Interest owned by or funded by it, or
any obligations or right to make Purchases or Reinvestments or to
provide funding therefor, or shall change the basis of taxation of
payments to the Affected Party of any Capital or Earned Discount owned
by, owed to or funded in whole or in part by it or any other amounts due
under this Agreement in respect of the Asset Interest owned by or funded
by it or its obligations or rights, if any, to make Purchases or
Reinvestments or to provide funding therefor (except for franchise taxes
or changes in the rate of tax on the overall net income of such Affected
Party imposed by the United States of America, by the jurisdiction in
which such Affected Party's principal executive office is located and,
if such Affected Party's principal executive
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office is not in the United States of America, by the jurisdiction where
such Affected Party's principal office in the United States is located);
or
(B) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the Federal
Reserve Board), special deposit, compulsory loan or similar requirement
against assets of any Affected Party, deposits or obligations with or
for the account of any Affected Party or with or for the account of any
affiliate (or entity deemed by the Federal Reserve Board to be an
affiliate) of any Affected Party, or credit extended by any Affected
Party, but excluding any reserve, special deposit or similar requirement
included in the determination of Earned Discount; or
(C) shall change the amount of capital maintained or required or
requested or directed to be maintained by any Affected Party; or
(D) shall impose any other condition affecting any Asset Interest
owned or funded in whole or in part by any Affected Party, or its
obligations or rights, if any, to make Purchases or Reinvestments or to
provide funding therefor; or
(E) shall change the rate for, or the manner in which the Federal
Deposit Insurance Corporation (or a successor thereto) assesses, deposit
insurance premiums or similar charges;
and the result of any of the foregoing is
(x) to increase the cost to or to impose a cost on an Affected
Party funding or making or maintaining any Purchases or Reinvestments,
any purchases, reinvestments, or loans or other extensions of credit
under any Program Agreement, or any commitment of such Affected Party
with respect to any of the foregoing,
(y) to reduce the amount of any sum received or receivable by an
Affected Party under this Agreement, or under any Program Agreement with
respect thereto, or
(z) to reduce the rate of return on the capital of an Affected
Party as a consequence of its obligations hereunder or under any Program
Agreement or arising in connection herewith to a level below that which
such Affected Party could otherwise have achieved,
then within thirty days after demand by such Affected Party (which demand shall
be accompanied by a statement setting forth the basis for, calculation of, and
amount of such additional costs or reduced amount receivable; provided, however,
that no Affected Party shall be required to disclose any confidential or tax
planning information in any such statement), Seller shall pay directly to such
Affected Party such additional amount or amounts as will compensate such
Affected Party for such additional or increased cost or such reduction.
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(b) Each Affected Party will promptly notify Seller and the
Administrator of any event of which it has knowledge which will entitle such
Affected Party to compensation pursuant to this Section 4.02; provided, however,
no failure to give or delay in giving such notification shall adversely affect
the rights of any Affected Party to such compensation.
(c) In determining any amount provided for or referred to in this
Section 4.02, an Affected Party may use any reasonable averaging and attribution
methods that it shall deem applicable. Any Affected Party when making a claim
under this Section 4.02 shall submit to Seller a statement as to such increased
cost or reduced return (including a calculation thereof in reasonable detail),
which statement shall, in the absence of demonstrable error, be conclusive and
binding upon Seller.
SECTION 4.03. Funding Losses. In the event that any Affected Party shall
incur any loss or expense (including any loss or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Affected Party to make or maintain any funding with respect to the Asset
Interest) as a result of (i) any settlement with respect to any portion of
Capital funded by such Affected Party being made on any day other than the
scheduled last day of an applicable Settlement Period with respect thereto, or
(ii) any Purchase not being made in accordance with a request therefor under
Section 1.02, then, within thirty days of written notice from the Administrator
to Seller, Seller shall pay to the Administrator for the account of such
Affected Party, the amount of such loss or expense. Such written notice (which
shall include calculations in reasonable detail) shall, in the absence of
demonstrable error, be conclusive and binding upon the Seller.
ARTICLE V
CONDITIONS TO PURCHASES
SECTION 5.01. Conditions Precedent to Initial Purchase. The initial
Purchase hereunder is subject to the condition precedent that the Administrator
shall have received, on or before the date of such Purchase, the following, each
(unless otherwise indicated) dated such date and in form and substance
satisfactory to the Administrator:
(a) Good standing certificates for each of Parent and Seller
issued by the Secretary of State of the jurisdiction of its
incorporation and its principal place of business;
(b) A certificate of the Secretary of each of Seller and Parent
certifying (i) a copy of the resolutions of its Board of Directors
approving this Agreement and the other Transaction Documents to be
delivered by it hereunder and the transactions contemplated hereby; (ii)
the names and true signatures of the officers authorized on its behalf
to sign this Agreement and the other Transaction Documents to be
delivered by it hereunder (on
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which certificate the Administrator and Purchaser may conclusively rely
until such time as the Administrator shall receive from Seller or
Parent, as the case may be, a revised certificate meeting the
requirements of this subsection (b)); (iii) a copy of its by-laws; and
(iv) all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to this Agreement and the
other Transaction Documents;
(c) The Certificate of Incorporation or Articles of
Incorporation, as applicable, of each of Seller and Parent, duly
certified by the Secretary of State of California (in the case of
Seller) and Delaware (in the case of Parent), as of a recent date
acceptable to Administrator;
(d) Acknowledgment copies, or time stamped receipt copies, of
proper financing statements (Form UCC-1), filed on or prior to the date
of the initial Purchase, naming (i) Parent as the debtor and seller of
Receivables, Seller as the secured party and purchaser and
Administrator, for the benefit of Purchaser, as the assignee and (ii)
Seller as the debtor and seller of Receivables or an undivided interest
therein and Administrator, for the benefit of Purchaser, as the secured
party and purchaser, or other, similar instruments or documents, as may
be necessary or, in the opinion of the Administrator, desirable under
the UCC or any comparable law of all appropriate jurisdictions to
perfect Seller's and Purchaser's interests in the Pool Assets;
(e) A search report provided in writing to and approved by the
Administrator listing all effective financing statements that name
Parent or Seller as debtor or assignor and that are filed in the
jurisdictions in which filings were made pursuant to subsection (d)
above and in such other jurisdictions that Administrator shall
reasonably request, together with copies of such financing statements
(none of which shall cover any Pool Assets, unless executed termination
statements with respect thereto have been delivered to the
Administrator), and tax and judgment lien search reports from a Person
satisfactory to Servicer and the Administrator showing no evidence of
such liens filed against Parent or Seller;
(f) Duly executed copies of the Lock-Box Agreements with the
Lock-Box Banks;
(g) Favorable opinions of (i) Glenn H. Stevens, general counsel
to Parent and Seller, in substantially the form of Exhibit 5.01(g)-1 and
(ii) Morrison & Foerster LLP, special counsel to Parent and Seller, in
substantially the forms of Exhibits 5.01(g)-2, 5.01(g)-3 and 5.01(b)-4,
respectively;
(h) Such powers of attorney as the Administrator shall reasonably
request to enable the Administrator to collect all amounts due under any
and all Pool Assets;
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(i) A pro forma Servicer Report, prepared in respect of the
proposed initial Purchase, assuming a Cut-Off Date of June 30, 1998;
(j) Evidence of payment by the Seller of all accrued and unpaid
fees (including those contemplated by the letter agreement referred to
in Section 4.01), costs and expenses to the extent then due and payable
on the date thereof, together with attorneys' fees of the Administrator
to the extent invoiced prior to or on such date, plus such additional
amounts of attorneys' fees as shall constitute the Administrator's
reasonable estimate of attorneys' fees incurred or to be incurred by it
through the closing proceedings (provided that such estimate shall not
thereafter preclude final settling of accounts between the Seller and
the Administrator), including any such costs, fees and expenses arising
under or referenced in Section 14.05;
(k) The Liquidity Agreement, duly executed by Purchaser, the
Liquidity Agent and each Liquidity Bank;
(l) The Purchase Agreement, duly executed by Parent and Seller,
and a copy of all documents required to be delivered thereunder; and
(m) Such other documents, certificates or opinions as the
Administrator may reasonably request.
SECTION 5.02. Conditions Precedent to All Purchases and Reinvestments.
Each Purchase (including the initial Purchase) and each Reinvestment hereunder,
shall be subject to the further conditions precedent that:
(a) in the case of each Purchase, the Servicer shall have
delivered to the Administrator on or prior to such purchase, in form and
substance satisfactory to the Administrator, a completed Servicer Report
with respect to the immediately preceding calendar month, dated within
two (2) Business Days prior to the date of such Purchase, together with
such additional information as may be reasonably requested by the
Administrator; and
(b) on the date of such Purchase or Reinvestment the following
statements shall be true (and Seller by accepting the amount of such
Purchase or by receiving the proceeds of such Reinvestment shall be
deemed to have certified that):
(i) the representations and warranties contained in
Article VI are correct on and as of such day as though made on
and as of such day and shall be deemed to have been made on such
day (except that any such representation or warranty that is
expressly stated as being made only as of a specified earlier
date shall be true and correct in all material respects as of
such earlier date),
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(ii) no event has occurred and is continuing, or would
result from such Purchase or Reinvestment, that constitutes a
Liquidation Event or Unmatured Liquidation Event,
(iii) after giving effect to each proposed Purchase or
Reinvestment, Capital will not exceed the Purchase Limit and the
Asset Interest will not exceed the Allocation Limit, and
(iv) the Termination Date shall not have occurred;
provided, however, the absence of the occurrence and continuance of an Unmatured
Liquidation Event shall not be a condition precedent to any Reinvestment.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties of Seller. Seller
represents and warrants as follows:
(a) Organization and Good Standing. Seller has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of California, with power and authority to
own its properties and to conduct its business as such properties are
presently owned and such business is presently conducted, and had at all
relevant times, and now has, all necessary power, authority, and legal
right to acquire and own the Pool Assets.
(b) Due Qualification. Seller is duly qualified to do business as
a foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all other jurisdictions in which the
ownership or lease of property or the conduct of its business requires
such qualification, licenses or approvals has not had, and except where
the failure to so qualify or have such licenses or approvals has not
had, and could not reasonably be expected to have, a Material Adverse
Effect.
(c) Power and Authority; Due Authorization. Seller (i) has all
necessary power, authority and legal right to (A) execute and deliver
this Agreement and the other Transaction Documents to which it is a
party, (B) carry out the terms of the Transaction Documents to which it
is a party, and (C) sell and assign the Asset Interest on the terms and
conditions herein provided and (ii) has duly authorized by all necessary
corporate action the execution, delivery and performance of this
Agreement and the other Transaction Documents to which it is a party and
the sale and assignment of the Asset Interest on the terms and
conditions herein provided.
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(d) Valid Transfer; Binding Obligations. This Agreement
constitutes a valid transfer and assignment of the Asset Interest to the
Administrator, for the benefit of Purchaser, enforceable against
creditors of, and purchasers from, Seller; and this Agreement
constitutes, and each other Transaction Document to be signed by Seller
when duly executed and delivered will constitute, a legal, valid and
binding obligation of Seller enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding
in equity or at law.
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the other Transaction Documents to
which it is a party and the fulfillment of the terms hereof and thereof
will not (i) conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time or
both) a default under, the Seller's certificate of incorporation or
by-laws or any Contractual Obligation of Seller, (ii) result in the
creation or imposition of any Lien upon any of Seller's properties
pursuant to the terms of any such Contractual Obligation, other than
this Agreement, or (iii) violate any Applicable Law.
(f) No Proceedings. There is no litigation, proceedings or
investigations pending, or to the best of Seller's knowledge,
threatened, before any Governmental Authority or arbitrator (i)
asserting the invalidity of this Agreement or any other Transaction
Document to which Seller is a party, (ii) seeking to prevent the sale
and assignment of the Asset Interest or the consummation of any of the
other transactions contemplated by this Agreement or any other
Transaction Document, or (iii) seeking any determination or ruling that
could reasonably be expected to have a Material Adverse Effect.
(g) Bulk Sales Act. No transaction contemplated hereby requires
compliance with any bulk sales act or similar law.
(h) Government Approvals. No Governmental Action is required for
the due execution, delivery and performance by Seller of this Agreement
or any other Transaction Document to which Seller is a party, except for
the filing of the UCC financing statements referred to in Article V, all
of which, at the time required in Article V, shall have been duly made
and shall be in full force and effect.
(i) Financial Condition. Since the date of Seller's formation,
there has been no material adverse change in Seller's financial
condition, business, assets or operations.
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(j) Margin Regulations. The use of all funds obtained by Seller
under this Agreement will not conflict with or contravene any of
Regulations G, T, U and X promulgated by the Board of Governors of the
Federal Reserve System from time to time.
(k) Quality of Title. Upon consummation of the first Purchase,
each Pool Asset is legally and beneficially owned by Seller free and
clear of any Lien (other than any Lien arising solely as the result of
any action taken by Purchaser or the Administrator); when the
Administrator, for the benefit of Purchaser, makes a Purchase or
Reinvestment, it shall have acquired a valid and enforceable perfected
first priority undivided percentage interest to the extent of the Asset
Interest in each Pool Asset, free and clear of any Lien (other than any
Lien arising solely as the result of any action taken by Purchaser or
the Administrator), enforceable against any creditor of, or purchaser
from, Seller or any Originator; and no financing statement or other
instrument similar in effect covering any Pool Asset is on file in any
recording office except such as may be filed (i) in favor of an
Originator in accordance with the Contracts, (ii) in favor of Seller in
accordance with the Purchase Agreement, or (iii) in favor of Purchaser
or the Administrator in accordance with this Agreement or in connection
with any Lien arising solely as the result of any action taken by
Purchaser or the Administrator.
(l) Accurate Reports. No Servicer Report (if prepared by Seller,
or to the extent information therein was supplied by Seller) or other
information, exhibit, financial statement, document, book, record or
report furnished or to be furnished by or on behalf of Seller to the
Administrator or Purchaser in connection with this Agreement was or will
be inaccurate in any material respect as of the date it was or will be
dated or (except as otherwise disclosed to the Administrator at such
time) as of the date so furnished, or contained or will contain any
material misstatement of fact or omitted or will omit to state a
material fact or any fact necessary to make the statements contained
therein not materially misleading.
(m) Offices. The principal place of business and chief executive
office of Seller are located at the address of Seller referred to in
Section 14.02, and the offices where Seller keeps all its books, records
and documents evidencing or relating to Pool Receivables are located at
the addresses specified in Schedule 6.01(m) (or at such other locations,
notified to the Administrator in accordance with Section 7.01(f), in
jurisdictions where all action required by Section 8.05 has been taken
and completed).
(n) Lock-Box Accounts. The names and addresses of all the
Lock-Box Banks, together with the account numbers of the lock-box
accounts of Seller at such Lock-Box Banks, are specified in Schedule
6.01(n) (or have been notified to the Administrator in accordance with
Section 7.03(d)).
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(o) Eligible Receivables. Each Receivable included in the Net
Pool Balance as an Eligible Receivable on the date of any Purchase,
Reinvestment or other calculation of Net Pool Balance shall be an
Eligible Receivable on such date.
(p) Accounting Sale. The Seller has accounted for each sale of
undivided percentage ownership interests in Receivables in its books and
financial statements as sales, consistent with GAAP.
(q) Credit and Collection Policy. The Seller has complied in all
material respects with the Credit and Collection Policy with regard to
each Receivable.
(r) Corporate Name. The Seller's complete corporate name is set
forth in the preamble to this Agreement, and the Seller does not use and
has not during the last six years used any other corporate name, trade
name, doing business name or fictitious name.
SECTION 6.02. Representations and Warranties of Parent. Parent
represents and warrants as follows:
(a) Organization and Good Standing. Parent has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of California, with power and authority to
own its properties and to conduct its business as such properties are
presently owned and such business is presently conducted.
(b) Due Qualification. Parent is duly qualified to do business as
a foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business requires such
qualification, licenses or approvals, except where the failure to so
qualify or have such licenses or approvals has not had, and could not
reasonably be expected to have, a Material Adverse Effect.
(c) Power and Authority; Due Authorization. Parent (i) has all
necessary power, authority and legal right to (A) execute and deliver
this Agreement and the other Transaction Documents to which it is a
party and (B) carry out the terms of the Transaction Documents to which
it is a party and (ii) has duly authorized by all necessary corporate
action the execution, delivery and performance of this Agreement and the
other Transaction Documents to which it is a party.
(d) Binding Obligations. This Agreement constitutes, and each
other Transaction Document to be signed by Parent when duly executed and
delivered will constitute, a legal, valid and binding obligation of
Parent enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally
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and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the other Transaction Documents to
which Parent is a party and the fulfillment of the terms hereof and
thereof will not (i) conflict with, result in any breach of any of the
terms and provisions of, or constitute (with or without notice or lapse
of time or both) a default under the Parent's articles of incorporation
or by-laws or any Contractual Obligation of Parent, (ii) result in the
creation or imposition of any Lien upon any of Parent's properties
pursuant to the terms of any such Contractual Obligation (other than any
Lien created pursuant to the Transaction Documents), or (iii) violate
any Applicable Law.
(f) No Proceedings. There is no litigation, proceedings or
investigations pending or, to the best of Parent's knowledge,
threatened, before any Governmental Authority or arbitrator (i)
asserting the invalidity of this Agreement or any other Transaction
Document to which Parent is a party, (ii) seeking to prevent the sale
and assignment of the Asset Interest or the consummation of any of the
other transactions contemplated by this Agreement or any other
Transaction Document, or (iii) seeking any determination or ruling that
could reasonably be expected to have a Material Adverse Effect.
(g) Government Approvals. No Governmental Action is required for
the due execution, delivery and performance by Parent of this Agreement
or any other Transaction Document to which it is a party.
(h) Financial Condition. (x) The consolidated balance sheets of
Parent and its consolidated Subsidiaries as at December 28, 1997, and
the related statements of earnings, shareholders' equity and cash flows
of Parent and its consolidated Subsidiaries for the fiscal year then
ended, certified by Coopers & Lybrand, and the consolidated balance
sheets of Parent and its consolidated Subsidiaries as at March 28, 1998,
and the related statements of earnings, shareholders' equity and cash
flows of Parent and its consolidated Subsidiaries for the fiscal quarter
then ended, copies of which have been furnished to the Administrator,
fairly present the consolidated financial condition, business and
operations of Parent and its consolidated Subsidiaries as at such dates
and the consolidated results of the operations of Parent and its
consolidated Subsidiaries for the period ended on such dates, all in
accordance with GAAP consistently applied, and (y) as of the date
hereof, since March 28, 1998 there has been no material adverse change
in any such condition, business or operations.
(i) Accurate Reports. No Servicer Report (if prepared by Parent,
or to the extent information therein was supplied by Parent) or other
information, exhibit, financial statement, document, book, record or
report furnished or to be furnished by or on behalf
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of Parent to the Administrator or Purchaser, in connection with this
Agreement was or will be inaccurate in any material respect as of the
date it was or will be dated or (except as otherwise disclosed to the
Administrator at such time) as of the date so furnished, or contained or
will contain any material misstatement of fact or omitted or will omit
to state a material fact or any fact necessary to make the statements
contained therein not materially misleading.
ARTICLE VII
GENERAL COVENANTS
SECTION 7.01. Affirmative Covenants. From the date hereof until the
Final Payout Date:
(a) Compliance with Laws, Etc. Each of Seller and Parent will
comply in all material respects with all Applicable Laws, including
those with respect to the Pool Receivables and the related Contracts,
except where noncompliance could not reasonably be expected to have a
Material Adverse Effect.
(b) Preservation of Corporate Existence. Each of Seller and
Parent will preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its formation, 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 could
reasonably be expected to have a Material Adverse Effect.
(c) Audits. (i) Each of Parent and Seller will at any time and
from time to time during regular business hours, permit the
Administrator or any of its agents or representatives, (A) to examine
and make copies of and abstracts from all books, records and documents
(including, without limitation, computer tapes and disks) in its
possession or under its control relating to Pool Assets, (B) to visit
its offices and properties for the purpose of examining such materials
described in clause (i)(A) above, and to discuss matters relating to
Pool Assets or its performance hereunder with any of its officers or
employees having knowledge of such matters, and (C) to verify the
existence and amount of the Receivables; and (ii) without limiting the
provisions of clause (i) above, from time to time on request of
Administrator, permit certified public accountants or other auditors
acceptable to the Administrator to conduct, at Seller's or Parent's, as
the case may be, expense, a review of its books and records with respect
to the Pool Receivables; provided that unless a Liquidation Event
exists, neither Seller nor Parent shall be responsible for the cost of
more than one such audit in any calendar year.
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(d) Keeping of Records and Books of Account. Each of Seller and
Parent will maintain and implement administrative and operating
procedures (including, without limitation, an ability to recreate
records evidencing Pool 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 Pool Assets (including, without limitation, records
adequate to permit the daily identification of each new Pool Receivable
and all Collections of and adjustments to each existing Pool
Receivable).
(e) Performance and Compliance with Receivables and Contracts.
Seller will, at its expense, timely and fully perform and comply (or
cause an Originator to perform and comply pursuant to the Purchase
Agreement) with all provisions, covenants and other promises required to
be observed by it under the Contracts related to the Pool Receivables
and all other agreements related to such Pool Receivables.
(f) Location of Records. Each of Seller and Parent will keep its
principal place of business and chief executive office, and the offices
where it keeps its records concerning the Pool Receivables and all
related Contracts and all other agreements related to such Pool
Receivables (and all original documents relating thereto), at its
address(es) referred to in Section 14.02 or, upon 30 days' prior written
notice to the Administrator, at such other locations in jurisdictions
where all action required by Section 8.05 shall have been taken and
completed.
(g) Credit and Collection Policies. Each of Seller and Parent, at
its own expense, will timely and fully perform and comply in all
material respects with the Credit and Collection Policy in regard to
each Pool Receivable and the related Contracts.
(h) Collections. Each of Seller and Parent will instruct (i) all
Obligors to cause all Collections to be sent to a Lock-Box that is the
subject of a Lock-Box Agreement and (ii) each Lock-Box Bank to deposit
all such Collections directly into a Lock-Box Account that is the
subject of a Lock-Box Agreement. In the event that Parent or Seller
receives Collections directly from any Obligor, Parent or Seller, as the
case may be, shall deposit such Collections into a Lock-Box Account
within two Business Days of receipt thereof.
(i) Net Worth. Seller will maintain a Tangible Net Worth of at
least $1,000,000.
(j) Quality of Title. Each of Seller and Parent will take all
action necessary or desirable to establish and maintain a valid and
enforceable perfected first priority undivided percentage interest in
favor of the Administrator, for the benefit of the Purchaser, to the
extent of the Asset Interest in each Pool Asset, free and clear of any
Lien (other than any Lien arising solely as a result of any action taken
by Purchaser or the Administrator), enforceable against any creditor of,
or purchaser from, Seller or Parent.
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SECTION 7.02. Reporting Requirements. From the date hereof until the
Final Payout Date:
(a) Quarterly Financial Statements. 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 (i) Seller will furnish to the
Administrator copies of its financial statements, consisting of at least
a balance sheet as at the close of such quarter and statements of
earnings for such quarter and for the period from the beginning of the
fiscal year to the close of such quarter, in each case in conformity
with GAAP (except for footnote disclosures), duly certified by the chief
financial officer of Seller and (ii) Parent will furnish to the
Administrator copies of the financial statements of Parent and its
Subsidiaries prepared on a consolidated basis, consisting of at least a
balance sheet as at the close of such quarter and statements of earnings
for such quarter and for the period from the beginning of the fiscal
year to the close of such quarter, in each case in conformity with GAAP
(except for footnote disclosures), duly certified by the chief financial
officer of Parent;
(b) Annual Financial Statements. As soon as available and in any
event within 120 days after the end of each fiscal year (i) Seller will
furnish to the Administrator copies of its financial statements,
consisting of at least a balance sheet of Seller for such year and
statements of earnings, cash flows and shareholders' equity, in each
case in conformity with GAAP, consistently applied, setting forth in
each case in comparative form corresponding figures from the preceding
fiscal year, with all such statements duly certified by independent
certified public accountants of recognized standing selected by Seller
and (ii) Parent will furnish to the Administrator copies of the
financial statements of Parent and its Subsidiaries prepared on a
consolidated basis, consisting of at least a balance sheet of Parent and
its Subsidiaries for such year and consolidated statements of earnings,
cash flows and shareholders' equity, in each case in conformity with
GAAP, consistently applied, setting forth in each case in comparative
form corresponding consolidated figures from the preceding fiscal year,
with all such statements duly certified by independent certified public
accountants of recognized standing selected by Parent;
(c) Compliance Certificate. Together with each quarterly and
annual financial statement delivered in accordance with the preceding
paragraphs, Parent will furnish to the Administrator a compliance
certificate showing a calculation of the financial covenants set forth
in Sections 10.01(n), (o) and (p) certified by an authorized officer of
Parent;
(d) Liquidation Events. Each of Seller and Parent will furnish to
the Administrator, as soon as possible and in any event within two (2)
Business Days after the occurrence of each Liquidation Event and each
Unmatured Liquidation Event, a written statement of an authorized
officer of Seller or Parent, as the case may be, setting forth details
of such event and the action that Seller or Parent, as the case may be,
proposes to take with respect thereto;
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(e) Litigation. Each of Seller and Parent will furnish to the
Administrator, as soon as possible and in any event within five Business
Days of Seller's or Parent's knowledge thereof, notice of (i) any
litigation, investigation or proceeding which may exist at any time
which could be reasonably expected to have a Material Adverse Effect and
(ii) any material adverse development in previously disclosed
litigation;
(f) Change in Credit and Collection Policy. Each of Seller and
Parent will furnish to the Administrator, prior to its effective date,
notice of any material change in the Credit and Collection Policy;
(g) Change in Name. Seller will furnish to the Administrator, at
least thirty days prior to any change in the Seller's name, location or
any other change requiring the amendment of UCC financing statements, a
notice setting forth such changes and the effective date thereof; and
(h) Other Information. Each of Seller and Parent will furnish to
the Administration such other information respecting the Receivables or
the condition or operations, financial or otherwise, of the Parent or
Seller or any of its Affiliates as the Administrator may from time to
time reasonably request.
SECTION 7.03. Negative Covenants. From the date hereof until the Final
Payout Date:
(a) Sales, Liens, Etc. Seller will not, except as otherwise
provided herein, sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Lien upon or with
respect to, any Pool Asset or any interest therein.
(b) Extension or Amendment of Receivables. Neither Parent nor
Seller will, except as otherwise permitted in Section 8.02, extend,
amend or otherwise modify, or permit Servicer to extend, amend or
otherwise modify, the terms of any Pool Receivable; or amend, modify or
waive, or permit Servicer to amend, modify or waive, any term or
condition of any Contract related to a Pool Receivable.
(c) Change in Business or Credit and Collection Policy. Neither
Parent nor Seller will make any change in the character of its business
or in the Credit and Collection Policy, which change could impair the
collectibility of any Pool Receivable or otherwise adversely affect the
interests or remedies of the Administrator or Purchaser under this
Agreement or any other Transaction Document.
(d) Change in Payment Instructions to Obligors. Neither Parent or
Seller will add or terminate any bank as a Lock-Box Bank or any Lock-Box
Account from those listed in Schedule 6.01(n) or make any change, or
permit Servicer to make any change, in
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its instructions to Obligors regarding payments to be made to Seller or
Servicer or payments to be made to any Lock-Box Bank, unless the
Administrator shall have received notice of such addition, termination
or change and duly executed copies of Lock-Box Agreements with each new
Lock-Box Bank or with respect to each new Lock-Box Account, as the case
may be.
(e) Mergers, Acquisitions, Sales, etc. Neither Parent nor Seller
will (i) be a party to any merger or consolidation, or purchase or
otherwise acquire all or substantially all of the assets or any stock of
any class of, or any partnership or joint venture interest in, any other
Person without the consent of the Administrator, unless, in the case of
Parent, Parent is the surviving corporation and no Liquidation Event has
occurred and is continuing or would result therefrom or (ii) sell,
transfer, convey or lease all or any substantial part of its assets
(except to the extent such transaction does not result in a Liquidation
Event pursuant to Section 10.01(n)), or sell or assign with or without
recourse any Receivables or any interest therein (other than pursuant
hereto or to the Purchase Agreement). Parent will not sell any of the
capital stock of Seller, or permit any Lien to exist thereon.
(f) Deposits to Special Accounts. Neither Parent nor Seller will
deposit or otherwise credit, or cause or permit to be so deposited or
credited, to any Lock-Box Account cash or cash proceeds other than
Collections of Pool Receivables.
(g) Other Business. Seller will not (i) engage in any business
other than the transactions contemplated by the Transaction Documents;
(ii) incur any indebtedness, obligation, liability or contingent
obligation of any kind other than pursuant to this Agreement or the
Purchase Agreement; or (iii) form any Subsidiary or make any investments
in any other Person.
(h) Certificate of Incorporation; Purchase Agreement. Seller will
not amend, modify, terminate, revoke or waive any provision of its
certificate of incorporation, the Initial Purchaser Note or the Purchase
Agreement.
(i) Restricted Payments. Seller will not declare or make any
dividend or other distributions to any of its shareholders, redeem or
purchase any of its capital stock or make any loan or other payments to
any of its shareholders (other than (1) payments of the purchase price
of Receivables as set forth in the Purchase Agreement, (2) the turnover
of Collections of Reconveyed Receivables to an Originator as set forth
in the Purchase Agreement, (3) payment of the Servicer's Fee so long as
Parent is the Servicer and (4) payment of reasonable management fees and
reimbursement of reasonable expenses of Parent incurred in connection
with managing Seller, so long as such fees and expenses are in an amount
not in excess of those that would be paid in a similar arms'- length
transaction) unless, in each case, no Liquidation Event or Unmatured
Liquidation Event has occurred and is continuing or would result
therefrom.
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(j) Change of Name or Location. Seller will not change its name
or the location of its principal place of business or chief executive
office or its corporate structure, unless Seller has given the
Administrator at least thirty (30) days prior notice thereof, and has
taken all steps necessary or advisable under the UCC to continue the
perfection and priority of the Administrator's and Purchaser's interest
in the Pool Assets.
SECTION 7.04. Separate Existence. Each of Seller and Parent hereby
acknowledges that Purchaser, the Program Support Providers and the Administrator
are entering into the transactions contemplated by this Agreement and the other
Transaction Documents in reliance upon Seller's identity as a legal entity
separate from Parent. Therefore, from and after the date hereof, each of Seller
and Parent shall take all steps specifically required by this Agreement or by
the Purchaser or Administrator to continue Seller's identity as a separate legal
entity and to make it apparent to third Persons that Seller is an entity with
assets and liabilities distinct from those of Parent and any other Person, and
is not a division of Parent or any other Person. Without limiting the generality
of the foregoing and in addition to and consistent with the other covenants set
forth herein, each of Seller and Parent shall take such actions as shall be
required in order that:
(a) Seller will be a limited purpose corporation whose primary
activities are restricted in its certificate of incorporation to
purchasing or otherwise acquiring from the Originators, owning, holding,
granting security interests, or selling interests, in Pool Assets,
entering into agreements for the selling and servicing of the
Receivables Pool, and conducting such other activities as it deems
necessary or appropriate to carry out its primary activities;
(b) Seller shall not engage in any business or activity, or incur
any indebtedness or liability other than as expressly permitted by the
Transaction Documents;
(c) Not less than one member of Seller's Board of Directors shall
be an Independent Director. The articles of incorporation or the by-laws
of Seller shall provide that (i) Seller's Board of Directors shall not
approve, or take any other action to cause the filing of, a voluntary
bankruptcy petition or a merger or dissolution with respect to Seller
unless the Independent Director shall approve the taking of such action
in writing prior to the taking of such action and (ii) such provision
cannot be amended without the prior written consent of the Independent
Director;
(d) The Independent Director shall not at any time serve as a
trustee in bankruptcy for Seller, Parent or any Affiliate thereof;
(e) Any employee, consultant or agent of Seller will be
compensated from Seller's funds for services provided to Seller. Seller
will not engage any agents other than its attorneys, auditors and other
professionals, and a Servicer as contemplated by the Transaction
Documents for the Receivables Pool, which Servicer will be fully
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compensated for its services by payment of the Servicer's Fee and a
manager, which manager will be fully compensated from Seller's funds;
(f) Seller will not incur any material indirect or overhead
expenses for items shared with Parent (or any other Affiliate thereof)
which are not reflected in the Servicer's Fee or the fee to Parent in
its role as manager for Seller. To the extent, if any, that Seller (or
any other Affiliate thereof) share items of expenses not reflected in
the Servicer's Fee or the manager's fee, such as legal, auditing and
other professional services, such expenses will be allocated to the
extent practical on the basis of actual use or the value of services
rendered, and otherwise on a basis reasonably related to the actual use
or the value of services rendered, it being understood that Parent shall
pay all expenses relating to the preparation, negotiation, execution and
delivery of the Transaction Documents, including, without limitation,
legal, rating agency and other fees;
(g) Seller's operating expenses will not be paid by Parent or any
other Affiliate thereof, other than certain expenses and liabilities
related to basic corporate overhead that may be allocated between Seller
and Parent ;
(h) Seller and Parent will have taken all steps necessary to make
the assumptions set forth in the substantive consolidation opinion
delivered by Morrison & Foerster LLP in connection with this Agreement
true and correct;
(i) Seller's books and records will be maintained separately from
those of Parent and any other Affiliate thereof;
(j) All financial statements of Parent or any Affiliate thereof
that are consolidated to include Seller will contain detailed notes
clearly stating that (A) all of Seller's assets are owned by Seller, and
(B) Seller is a separate entity with creditors who have received
security interests in Seller's assets;
(k) Seller's assets will be maintained in a manner that
facilitates their identification and segregation from those of Parent or
any Affiliate thereof;
(l) Seller will strictly observe corporate formalities in its
dealings with Parent or any Affiliate thereof, and funds or other assets
of Seller will not be commingled with those of Parent or any Affiliate
thereof except as permitted by this Agreement in connection with
servicing the Pool Receivables. Seller shall not maintain joint bank
accounts or other depository accounts to which Parent or any Affiliate
thereof (other than Parent in its capacity as Servicer) has independent
access; and
(m) Seller will maintain arms'-length relationships with Parent
(and any Affiliate thereof). Any Person that renders or otherwise
furnishes services to Seller will be compensated by Seller at market
rates for such services it renders or otherwise furnishes
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to Seller. Neither Seller nor Parent will be or will hold itself out to
be responsible for the debts of the other or the decisions or actions
respecting the daily business and affairs of the other. Seller and
Parent will immediately correct any known misrepresentation with respect
to the foregoing, and they will not operate or purport to operate as an
integrated single economic unit with respect to each other or in their
dealing with any other entity.
ARTICLE VIII
ADMINISTRATION AND COLLECTION
SECTION 8.01. Designation of Servicer.
(a) Parent as Initial Servicer. The servicing, administering and
collection of the Pool Receivables shall be conducted by the Person designated
as Servicer hereunder ("Servicer") from time to time in accordance with this
Section 8.01. Until the Administrator gives to Parent a Successor Notice, Parent
is hereby designated as, and hereby agrees to perform the duties and obligations
of, Servicer pursuant to the terms hereof.
(b) Successor Notice; Servicer Transfer Events. Upon Parent's receipt of
notice from the Administrator of the Administrator's designation of a new
Servicer (a "Successor Notice"), Parent agrees that it will terminate its
activities as Servicer hereunder in a manner that the Administrator reasonably
believes will facilitate the transition of the performance of such activities to
the new Servicer, and the new Servicer shall assume each and all of Parent's
obligations to service and administer such Pool Receivables, on the terms and
subject to the conditions herein set forth, and Parent shall use its best
efforts to assist the new Servicer in assuming such obligations. The
Administrator agrees not to give Parent a Successor Notice until after the
occurrence of a Liquidation Event (any such Liquidation Event being herein
called a "Servicer Transfer Event"), in which case such Successor Notice may be
given at any time in the Administrator's discretion.
(c) Resignation. The Parent acknowledges that the Administrator and
Purchaser have relied on the Parent's agreement to act as Servicer hereunder in
making their decision to execute and deliver this Agreement. Accordingly, the
Parent agrees that it will not voluntarily resign as Servicer.
(d) Subcontracts. Servicer may, with the prior consent of the
Administrator, subcontract with any other Person for servicing, administering or
collecting the Pool Receivables, provided that (i) such Sub-Servicer shall agree
in writing to perform the duties and obligations of the Servicer pursuant to the
terms hereof; (ii) Servicer shall remain primarily liable for the performance of
the duties and obligations of Servicer pursuant to the terms hereof, (iii)
Seller, the Administrator and Purchaser shall have the right to look solely to
the Servicer for performance,
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and (iv) any such subcontract may be terminated at the option of the
Administrator upon the occurrence of a Servicer Transfer Event.
(e) Servicing Programs. In the event that Servicer uses any software
program in servicing the Pool Receivables that it licenses from a third party,
Servicer shall use its best efforts to obtain whatever licenses or approvals are
necessary to allow the Administrator or the new Servicer to use such program.
SECTION 8.02. Duties of Servicer.
(a) Appointment; Duties in General. Each of Seller, Purchaser and the
Administrator hereby appoints as its agent Servicer, as from time to time
designated pursuant to Section 8.01, to enforce its rights and interests in and
under the Pool Assets. Servicer shall take or cause to be taken all such actions
as may be necessary or advisable to collect each Pool Receivable from time to
time, all in accordance with Applicable Law, with reasonable care and diligence
and in accordance with the Credit and Collection Policy.
(b) Allocation of Collections; Segregation. Servicer shall set aside for
the account of Seller and Purchaser their respective allocable shares of the
Collections of Pool Receivables in accordance with Section 1.03 but shall not be
required (unless otherwise instructed by the Administrator) to segregate the
funds constituting such portions of such Collections prior to the remittance
thereof in accordance with Section 3.01. If instructed by the Administrator,
Servicer shall segregate and deposit with a bank designated by the
Administrator, Purchaser's Share of Collections, on the second Business Day
following receipt by Servicer of such Collections in immediately available
funds.
(c) Modification of Receivables. So long as no Liquidation Event or
Unmatured Liquidation Event shall have occurred and be continuing, Servicer may
(i) in accordance with the Credit and Collection Policy, adjust the Unpaid
Balance of any Defaulted Receivable or extend the time for payment of any
Defaulted Receivable (but in no event to a date later than 120 days from the
date of the original invoice), provided that (A) such extension or adjustment
shall not alter the status of such Pool Receivable as a Delinquent Receivable or
a Defaulted Receivable or limit the rights of Purchaser or the Administrator
under this Agreement, and (B) the aggregate amount of all such adjustments made
in any Settlement Period, plus the aggregate Unpaid Balance of all Pool
Receivables that have been extended during such Settlement Period, shall not
exceed 2% of the aggregate Unpaid Balance of all Pool Receivables as at the
Cut-Off Date for such Settlement Period and (ii) adjust the Unpaid Balance of
any Receivable to reflect the reductions or cancellations described in the first
sentence of Section 3.02(a).
(d) Documents and Records. Seller shall deliver to Servicer, and
Servicer shall hold in trust for Seller and Purchaser in accordance with their
respective interests, all documents, instruments and records (including, without
limitation, computer tapes or disks) that evidence or relate to Pool
Receivables.
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(e) Certain Duties to Seller. Servicer shall, as soon as practicable
following receipt, turn over to Seller (i) that portion of Collections of Pool
Receivables representing its undivided interest therein, less the Seller's Share
of the Servicer's Fee, and (ii) the Collections of any Receivable which is not a
Pool Receivable. Seller hereby directs Servicer to pay any Collections of any
Reconveyed Receivable directly to the related Originator to be applied pursuant
to the Purchase Agreement. Servicer shall, as soon as practicable upon demand,
deliver to Seller copies of documents, instruments and records in its possession
that evidence or relate to Pool Receivables.
(f) Termination. Servicer's authorization under this Agreement shall
terminate upon the Final Payout Date.
(g) Power of Attorney. Seller hereby grants to Servicer an irrevocable
power of attorney, with full power of substitution, coupled with an interest, to
take in the name of Seller all steps which are necessary or advisable to
endorse, negotiate or otherwise realize on any writing or other right of any
kind held or transmitted by Seller or transmitted or received by Purchaser
(whether or not from Seller) in connection with any Receivable. Notwithstanding
anything to the contrary contained herein, the Administrator may direct the
Servicer to commence or settle any legal action to enforce collection of any
Pool Receivable or to foreclose upon or repossess any Related Security;
provided, however, that no such direction may be given unless either (i) a
Liquidation Event has occurred or (ii) the Administrator believes in good faith
that failure to commence, settle, or effect such legal action, foreclosure or
repossession, could adversely affect Receivables constituting a material portion
of the Pool Receivables.
SECTION 8.03. Rights of the Administrator
(a) Notice to Obligors. At any time after the occurrence of a
Liquidation Event, the Administrator may notify the Obligors of Pool
Receivables, or any of them, of the ownership of the Asset Interest by the
Administrator, for the benefit of Purchaser.
(b) Notice to Lock-Box Banks. At any time following the earlier to occur
of (i) the occurrence of a Liquidation Event, and (ii) the commencement of the
Liquidation Period, the Administrator is hereby authorized to give notice to the
Lock-Box Banks, as provided in the Lock-Box Agreements, of the transfer to the
Administrator of dominion and control over the lock-boxes and Lock-Box Accounts.
Seller hereby transfers to the Administrator, effective when the Administrator
shall give notice to the Lock-Box Banks as provided in the Lock-Box Agreements,
the exclusive dominion and control over such lock-boxes and accounts, and shall
take any further action that the Administrator may reasonably request to effect
such transfer. Any proceeds of Pool Receivables received by the Seller or
Parent, as Servicer or otherwise, thereafter shall be sent immediately to the
Administrator.
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(c) Rights on Servicer Transfer Event. At any time following the
designation of a Servicer other than Parent pursuant to Section 8.01:
(i) The Administrator may direct the Obligors of Pool
Receivables, or any of them, to pay all amounts payable under any Pool
Receivable directly to the Administrator or its designee.
(ii) Parent shall, at the Administrator's request and at Parent's
expense, give notice of such ownership to each said Obligor and direct
that payments be made directly to the Administrator or its designee.
(iii) Parent and Seller shall, at the Administrator's request,
(A) assemble all of the documents, instruments and other records
(including, without limitation, computer programs, tapes and disks)
which evidence the Pool Receivables and the related Contracts and
Related Security, or which are otherwise necessary or desirable to
collect such Pool Receivables and make the same available to the
Administrator at a place selected by the Administrator, and (B)
segregate all cash, checks and other instruments received by it from
time to time constituting Collections in a manner acceptable to the
Administrator and promptly upon receipt, remit all such cash, checks and
instruments, duly endorsed or with duly executed instruments of
transfer, to the Administrator.
(iv) Each of Seller and Purchaser hereby authorizes the
Administrator, and grants to the Administrator an irrevocable power of
attorney, to take any and all steps in Seller's name and on behalf of
Seller and Purchaser which are necessary or desirable, in the reasonable
determination of the Administrator, to collect all amounts due under any
and all Pool Receivables including, without limitation, endorsing
Seller's name on checks and other instruments representing Collections
and enforcing such Pool Receivables and the related Contracts.
SECTION 8.04. Responsibilities of Seller. Anything herein to the
contrary notwithstanding:
(a) Contracts. Seller shall perform, or cause an Originator to
perform under the Purchase Agreement, all of its obligations under the
Contracts related to the Pool Receivables and under the other agreements
related thereto to the same extent as if the Asset Interest had not been
sold hereunder, and the exercise by the Administrator or its designee of
its rights hereunder shall not relieve Seller from such obligations.
(b) Limitation of Liability. Neither the Administrator nor
Purchaser shall have any obligation or liability with respect to any
Pool Receivables, the related Contracts or any other related agreements,
nor shall any of them be obligated to perform any of the obligations of
Seller or any Originator thereunder.
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SECTION 8.05. Further Action Evidencing Purchases and Reinvestments.
(a) Further Assurances. The Seller shall, at its expense, take all
action necessary or desirable to establish and maintain a valid and enforceable
first priority perfected undivided interest, to the extent of the Asset
Interest, in the Pool Assets, free and clear of any Lien, in favor of the
Administrator, for the benefit of Purchaser. Without limiting the generality of
the foregoing, Seller will upon the request of the Administrator or its designee
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 appropriate to evidence or perfect the interest described in the
previous sentence.
(b) Data Processing Records. Each of Parent and Seller will mark its
master data processing records evidencing the Pool Receivables with a legend,
acceptable to the Administrator, evidencing that the Asset Interest has been
sold in accordance with this Agreement.
(c) Additional Financing Statements; Performance by Administrator.
Seller hereby authorizes the Administrator or its designee to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relative to all or any portion of the Asset Interest now existing or
hereafter arising in the name of Seller. If Seller or Parent fails to perform
any of its agreements or obligations under this Agreement, the Administrator or
its designee may (but shall not be required to) itself perform, or cause
performance of, such agreement or obligation, and the expenses of the
Administrator or its designee incurred in connection therewith shall be payable
by Seller or Parent, as the case may be.
(d) Continuation Statements; Opinion. Without limiting the generality of
subsection (a), Seller will, not earlier than six (6) months and not later than
three (3) months prior to the fifth anniversary of the date of filing of the
financing statement referred to in Section 5.01(d) or any other financing
statement filed pursuant to this Agreement or in connection with any Purchase
hereunder, unless the Final Payout Date shall have occurred:
(i) execute and deliver and file or cause to be filed an
appropriate continuation statement with respect to such financing
statement; and
(ii) deliver or cause to be delivered to the Administrator an
opinion of the counsel for Seller, in form and substance reasonably
satisfactory to the Administrator, confirming and updating the opinion
delivered pursuant to Section 5.01(g) with respect to perfection and
otherwise to the effect that the Asset Interest hereunder continues to
be an enforceable and perfected ownership or security interest, subject
to no other Liens of record except as provided herein or otherwise
permitted hereunder, which opinion may contain usual and customary
assumptions, limitations and exceptions.
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SECTION 8.06. Application of Collections. Any payment by an Obligor in
respect of any indebtedness owed by it to Seller shall, except as otherwise
specified by such Obligor, required by the underlying Contract or law or unless
the Administrator instructs otherwise, be applied, first, as a Collection of any
Pool Receivable or Receivables then outstanding of such Obligor in the order of
the age of such Pool Receivables, starting with the oldest of such Pool
Receivable and, second, to any other indebtedness of such Obligor.
ARTICLE IX
SECURITY INTEREST
SECTION 9.01. Grant of Security Interest. To secure all obligations of
Seller arising in connection with this Agreement and each other Transaction
Document, whether now or hereafter existing, due or to become due, direct or
indirect, or absolute or contingent, including, without limitation, all
Indemnified Amounts, payments on account of Collections of Pool Receivables
received or deemed to be received and fees, effective as of the date of the
first Purchase, Seller hereby assigns and grants to Administrator, for the
benefit of the Secured Parties, a security interest in all of Seller's right,
title and interest (including specifically any undivided interest retained by
Seller hereunder) now or hereafter existing in, to and under all the Pool
Assets.
SECTION 9.02. Further Assurances. The provisions of Section 8.05 shall
apply to the security interest granted under Section 9.01 as well as to the
Purchases, Reinvestments and the Asset Interest hereunder.
SECTION 9.03. Remedies. Upon the occurrence of a Liquidation Event, the
Administrator and Purchaser shall have, with respect to the collateral granted
pursuant to Section 9.01, and in addition to all other rights and remedies
available to Purchaser or the Administrator under this Agreement or other
applicable law, all the rights and remedies of a secured party upon default
under the UCC.
ARTICLE X
LIQUIDATION EVENTS
SECTION 10.01. Liquidation Events. The following events shall be
"Liquidation Events" hereunder:
(a) (i) Servicer (if Parent or its Affiliate is Servicer) shall
fail to perform or observe any material term, covenant or agreement that
is an obligation of Servicer
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hereunder (other than as referred to in clause (ii) next following) and
such failure shall remain unremedied for more than five Business Days or
(ii) Seller or Servicer (if Parent or its Affiliate is Servicer) shall
fail to make any payment or deposit to be made by it hereunder when due;
or
(b) Any representation or warranty made or deemed to be made by
Seller or Parent under or in connection with this Agreement, any other
Transaction Document or any Servicer Report or other information or
report delivered pursuant hereto shall prove to have been false or
incorrect in any material respect when made; or
(c) Seller or Parent shall fail to perform or observe any other
term, covenant or agreement contained in this Agreement or any of the
other Transaction Documents on its part to be performed or observed and
any such failure shall remain unremedied for fifteen (15) Business Days
after written notice thereof shall have been given by the Administrator
to Seller or Parent, as the case may be; or
(d) A default shall have occurred and be continuing under any
instrument or agreement evidencing, securing or providing for the
issuance of indebtedness for borrowed money in excess of $5,000,000 of,
or guaranteed by, Parent or any Subsidiary thereof, which default is a
payment default that continues beyond the applicable grace period, if
any; or
(e) This Agreement or any Purchase or any Reinvestment pursuant
to this Agreement shall for any reason (other than pursuant to the terms
hereof) (i) cease to create, or the Asset Interest shall for any reason
cease to be, a valid and enforceable perfected undivided percentage
interest to the extent of the Asset Interest in each Pool Asset, free
and clear of any other Lien or (ii) cease to create with respect to the
items described in Section 9.01, or the interest of the Administrator
(for the benefit of Purchaser) with respect to such items shall cease to
be, a valid and enforceable first priority perfected security interest,
free and clear of any other Lien; or
(f) An Event of Bankruptcy shall have occurred and remain
continuing with respect to Seller, Parent or any Subsidiary thereof; or
(g) The average of the Sales-Based Dilution Ratios for any three
consecutive Cut-Off Dates exceeds 9%; or
(h) The Sales-Based Default Ratio for any Cut-Off Date exceeds
5%; or
(i) On any Settlement Date, after giving effect to the payments
made under Section 3.01(c), the Asset Interest exceeds the Allocation
Limit; or
(j) The Delinquency Ratio for any Cut-Off Date is greater than
10%; or
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(k) There shall exist any event or occurrence that has caused, or
has a reasonable possibility of causing, a Material Adverse Effect
(other than a Material Adverse Effect described in clause (i) of the
definition thereof); or
(l) Seller, any Originator or Parent is subject to a
Change-in-Control; or
(m) The Internal Revenue Service shall file notice of a lien
pursuant to Section 6323 of the Internal Revenue Code with regard to any
of the assets of Seller or Parent and such lien shall not have been
released within 5 Business Days, or the Pension Benefit Guaranty
Corporation shall file notice of a lien pursuant to Section 4068 of the
Employee Retirement Income Security Act of 1974 with regard to any of
the assets of Seller or Parent and such lien shall not have been
released within 5 Business Days; or
(n) Parent sells, assigns (by operation of law or otherwise) or
otherwise disposes of any of its assets, or any interest therein, other
than (i) sales of inventory in the ordinary course of business, (ii)
sales of surplus, damaged, worn or obsolete assets, or assets that are
promptly being replaced, (iii) sales of assets on commercially
reasonable terms, (iv) sales of receivables in connection with a
securitization transaction, (v) sales to Subsidiaries, and (vi) sales of
other assets, provided that the aggregate fair market value of such
assets sold in any period of four consecutive fiscal quarters does not
exceed the greater of (1) 25% of the Parent's Tangible Net Worth as of
the last day of such fourth fiscal quarter and (2) $75,000,000; or
(o) Parent makes any Investments other than (i) Permitted
Investments, (ii) Investments existing on the date hereof, (iii)
Investments in Subsidiaries, (iv) Investments in the nature of
acquisitions, provided that the aggregate amount of such acquisitions in
any period of four consecutive fiscal quarters does not exceed 25% of
Parent's Tangible Net Worth as of the last day of such fourth fiscal
quarter, (v) Investments in businesses related to data and information
storage, and (vi) Investments not otherwise permitted by this
subparagraph (o), provided that the aggregate amount of such Investments
does not exceed the greater of (i) 25% of Parent's Tangible Net Worth as
of the last day of the most recently ended fiscal quarter and (ii) $50,
000,000; or
(p) Parent permits:
(i) its Tangible Net Worth to be less than (A) at all
times prior to the IPO, an amount equal to (1) its Tangible Net
Worth as of March 31, 1998, minus (2) $25,000,000, plus (iii) 50%
of Consolidated Net Income (not to be reduced by losses) from
March 31, 1998 to the end of the most recently ended fiscal
quarter and (B) at all times after the IPO, an amount equal to
(i) 70% of the sum of its Tangible Net Worth as of the end of
June, 1998, plus the net proceeds of the IPO,
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plus (iii) 50% of Consolidated Net Income (not to be reduced by
losses) from the date of the IPO to the end of the most recently
ended fiscal quarter.
(ii) (1) prior to the IPO, the EBITDAR Ratio to be less
than (A) 2.25:1 for the fiscal quarter ending in June and
September of 1998, (B) 2.50:1 for the fiscal quarter ending in
December of 1998, (C) 2.75:1 for the fiscal quarter ending in
March of 1999, and (D) 3.00:1 for each fiscal quarter thereafter
and (2) after the IPO, the EBITDAR Ratio to be less than 1.50:1
for any fiscal quarter.
SECTION 10.02. Remedies.
(a) Optional Liquidation. Upon the occurrence of a Liquidation Event
(other than a Liquidation Event described in subsection (f) of Section 10.01),
the Administrator shall, at the request, or may with the consent, of Purchaser,
by notice to Seller declare the Purchase Termination Date to have occurred and
the Liquidation Period to have commenced.
(b) Automatic Liquidation. Upon the occurrence of a Liquidation Event
described in subsection (f) of Section 10.01, the Purchase Termination Date
shall occur and the Liquidation Period shall commence automatically.
(c) Additional Remedies. Upon any Purchase Termination Date occurring
pursuant to this Section 10.02, no Purchases or Reinvestments thereafter will be
made, and the Administrator and Purchaser shall have, in addition to all other
rights and remedies under this Agreement or otherwise, all other rights and
remedies provided under the UCC of each applicable jurisdiction and other
Applicable Law, which rights shall be cumulative.
ARTICLE XI
THE ADMINISTRATOR
SECTION 11.01. Authorization and Action. Pursuant to the Program
Agreements, Purchaser has appointed and authorized the Administrator (or its
designees) to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to the Administrator by the terms
hereof, together with such powers as are reasonably incidental thereto.
SECTION 11.02. Administrator's Reliance, Etc. The Administrator and its
directors, officers, agents or employees shall not be liable for any action
taken or omitted to be taken by it or them under or in connection with the
Transaction Documents (including, without limitation, the servicing,
administering or collecting of Pool Receivables as Servicer pursuant to Section
8.01), except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the
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foregoing, the Administrator: (a) may consult with legal counsel (including
counsel for Seller), independent certified 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; (b) makes no warranty or representation to Purchaser or
any other holder of any interest in Pool Receivables and shall not be
responsible to Purchaser or any such other holder for any statements, warranties
or representations made in or in connection with any Transaction Document; (c)
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 Transaction
Document on the part of Seller or Parent or to inspect the property (including
the books and records) of Seller, any Originator or Parent; (d) shall not be
responsible to Purchaser or any other holder of any interest in Pool Receivables
for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Transaction Document; and (e) shall incur no
liability under or in respect of this Agreement by acting upon any notice
(including notice by telephone), consent, certificate or other instrument or
writing (which may be by facsimile or telex) believed by it to be genuine and
signed or sent by the proper party or parties.
SECTION 11.03. Fleet and Affiliates. Fleet and any of its Affiliates may
generally engage in any kind of business with Seller, Parent, any Originator or
any Obligor, any of their respective Affiliates and any Person who may do
business with or own securities of Seller, Parent, any Originator or any Obligor
or any of their respective Affiliates, all as if Fleet were not the
Administrator, and without any duty to account therefor to Purchaser or any
other holder of an interest in Pool Receivables.
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ARTICLE XII
ASSIGNMENT OF PURCHASER'S INTEREST
SECTION 12.01. Restrictions on Assignments.
(a) Neither Seller nor Parent may assign its rights, or delegate its
duties, hereunder or any interest herein without the prior written consent of
the Administrator. Purchaser may not assign its rights hereunder (although it
may delegate its duties hereunder as expressly indicated herein) or the Asset
Interest (or any portion thereof) to any Person without the prior written
consent of Seller, which consent shall not be unreasonably withheld; provided,
however, that Purchaser may assign all of its rights and interests in the
Transaction Documents, together with all its interest in the Asset Interest, to
(i) Fleet or any Affiliate thereof, or (ii) to any "bankruptcy remote" special
purpose entity the business of which is administered by Fleet or any Affiliate
thereof, so long as such entity has the ability to issue commercial paper notes,
or to cause the issuance of commercial paper notes, to fund the Asset Interest
or (iii) to any Program Support Provider. If Purchaser notifies Seller and
Parent that it has decided to assign its rights and delegate its duties
hereunder to one or more Program Support Providers (or an agent therefor),
Seller and Parent agree to enter into such amendments hereto and to the other
Transaction Documents as the Administrator may reasonably request to reflect
such assignment and delegation.
(b) Seller agrees to advise the Administrator within five (5) Business
Days after notice to Seller of any proposed assignment by Purchaser of the Asset
Interest (or any portion thereof), not otherwise permitted under subsection (a),
of Seller's consent or non-consent to such assignment and if it does not
consent, the reasons therefor. If Seller does not respond in such time period,
Seller shall be deemed to have consented to such assignment. All of the
aforementioned assignments shall be upon such terms and conditions as Purchaser
and the assignee may mutually agree.
SECTION 12.02. Rights of Assignee. Upon the assignment by Purchaser in
accordance with this Article XII, the assignee receiving such assignment shall
have all of the rights of Purchaser with respect to the Transaction Documents
and the Asset Interest (or such portion thereof as has been assigned).
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ARTICLE XIII
INDEMNIFICATION
SECTION 13.01. Indemnities.
(a) General Indemnity by Seller. Without limiting any other rights which
any such Person may have hereunder or under Applicable Law, Seller hereby agrees
to indemnify each of the Administrator, Purchaser, each Program Support
Provider, each of their respective Affiliates, and all successors, permitted
transferees, participants and permitted assigns and all officers, directors,
shareholders, controlling persons, employees and agents of any of the foregoing
(each an "Indemnified Party"), within five Business Days of demand, from and
against any and all damages, losses, claims, liabilities and related costs and
expenses, including reasonable attorneys' fees and disbursements (all of the
foregoing being collectively referred to as "Indemnified Amounts") awarded
against or incurred by any of them arising out of or relating to the Transaction
Documents or the ownership or funding of the Asset Interest or in respect of any
Receivable or any Contract, excluding, however, (a) Indemnified Amounts to the
extent resulting from gross negligence or willful misconduct on the part of any
Indemnified Party or (b) Indemnified Amounts which have the effect of recourse
for non-payment of the Pool Receivables due to credit problems of the Obligors
(except as otherwise specifically provided in this Agreement). Without limiting
the foregoing, Seller shall indemnify each Indemnified Party for Indemnified
Amounts arising out of or relating to:
(i) the transfer by Seller of any interest in any Pool Receivable
other than the transfer of an Asset Interest to the Administrator, for
the benefit of Purchaser, pursuant to this Agreement and the grant of a
security interest to the Administrator pursuant to Section 9.01;
(ii) any representation or warranty made by Seller under or in
connection with any Transaction Document, any Servicer Report or any
other information or report delivered by or on behalf of Seller pursuant
hereto, which shall have been false, incorrect or misleading in any
respect when made or deemed made;
(iii) the failure by Seller to comply with any Applicable Law, or
the nonconformity of any Pool Receivable or the related Contract with
any Applicable Law;
(iv) the failure to vest and maintain vested in the
Administrator, for the benefit of Purchaser, an undivided percentage
ownership or security interest, to the extent of the Asset Interest, in
the Pool Assets, free and clear of any Lien, other than a Lien arising
solely as a result of an act of Purchaser or the Administrator, whether
existing at the time of any Purchase or Reinvestment of such Asset
Interest or at any time thereafter;
(v) the failure to file, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of
any applicable jurisdiction or other applicable laws with respect to any
Pool Assets, whether at the time of any Purchase or Reinvestment or at
any time thereafter;
(vi) any dispute, claim, offset or defense (other than discharge
in bankruptcy or payment) of the Obligor to the payment of any
Receivable included in the Net Pool
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Balance (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 Seller to perform its duties or obligations
in accordance with this Agreement;
(viii) any products liability claim arising out of or in
connection with merchandise or services that are the subject of any Pool
Receivable;
(ix) any litigation, proceedings or investigation against Seller
other than by an Indemnified Person; or
(x) any tax or governmental fee or charge (but not including
taxes upon or measured by net income or representing a franchise or
unincorporated business tax of such Person), all interest and penalties
thereon or with respect thereto, and all out-of-pocket costs and
expenses, including the reasonable fees and expenses of counsel in
defending against the same, which may arise by reason of the purchase or
ownership of any Asset Interest, or any other interest in the Pool
Receivables or in any goods which secure any such Pool Receivables.
(b) Indemnity by Servicer. Without limiting any other rights which any
such Person may have hereunder or under applicable law, Servicer hereby agrees
to indemnify each Indemnified Party, forthwith on demand, from and against any
and all Indemnified Amounts awarded against or incurred by any of them arising
out of or relating to (i) any representation or warranty made by Servicer under
or in connection with any Transaction Document, any Servicer Report or any other
information or report delivered by or on behalf of Servicer pursuant hereto,
which shall have been false, incorrect or misleading in any material respect
when made or deemed made, (ii) the failure by Servicer to comply with any
Applicable Law, (iii) the failure of Servicer to perform its duties or
obligations in accordance with this Agreement or (iv) the commingling of any
Collections with other funds.
(c) After-Tax Basis. Indemnification hereunder shall be in an amount
necessary to make the Indemnified Party whole after taking into account any tax
consequences to the Indemnified Party of the receipt of the indemnity provided
hereunder, including the effect of such tax or refund on the amount of tax
measured by net income or profits which is or was payable by the Indemnified
Party.
(d) Contribution. If for any reason the indemnification provided above
in this Section 13.01 is unavailable to an Indemnified Party or is insufficient
to hold an Indemnified Party harmless, then Seller or Servicer, as the case may
be, shall contribute to the amount paid or
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payable by such Indemnified Party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by such Indemnified Party on the one hand and Seller or
Servicer, as the case may be, on the other hand but also the relative fault of
such Indemnified Party as well as any other relevant equitable considerations.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. Amendments, Etc. Amendments, Etc. No amendment or waiver
of any provision of this Agreement nor consent to any departure by any party
therefrom shall in any event be effective unless the same shall be in writing
and signed by (a) Seller, the Administrator, Parent and Purchaser (with respect
to an amendment) or (b) the Administrator and Purchaser (with respect to a
waiver or consent by them) or Seller or Parent (with respect to a waiver or
consent by it), as the case may be, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. The parties acknowledge that, before entering into such an amendment or
granting such a waiver or consent, Purchaser may also be required to obtain the
approval of some or all of the Program Support Providers.
SECTION 14.02. Notices, Etc. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including facsimile communication) and shall be personally delivered or sent by
express mail or courier or by certified mail, postage prepaid, or by facsimile,
to the intended party at the address or facsimile number of such party set forth
under its name on Schedule 14.02 or at such other address or facsimile number as
shall be designated by such party in a written notice to the other parties
hereto. All such notices and communications shall be effective, (a) if
personally delivered or sent by express mail or courier or if sent by certified
mail, when received, and (b) if transmitted by facsimile, when sent, receipt
confirmed by telephone or electronic means.
SECTION 14.03. No Waiver; Remedies. No failure on the part of the
Administrator, any Affected Party, any Indemnified Party, Purchaser or any other
holder of the Asset Interest (or any portion thereof) to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 14.04. Binding Effect; Survival. This Agreement shall be binding
upon and inure to the benefit of Seller, Parent, the Administrator, Purchaser
and their respective successors and assigns, and the provisions of Section 4.02
and Article XIII shall inure to the benefit of the Affected Parties and the
Indemnified Parties, respectively, and their respective successors and assigns;
provided, however, nothing in
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<PAGE> 46
the foregoing shall be deemed to authorize any assignment not permitted by
Section 12.01. This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms, and shall remain
in full force and effect until the Final Payout Date. The rights and remedies
with respect to any breach of any representation and warranty made by Seller or
Parent pursuant to Article VI and the indemnification and payment provisions of
Article XIII and Sections 4.02, 14.05, 14.06, 14.07, 14.08 and 14.15 shall be
continuing and shall survive any termination of this Agreement.
SECTION 14.05. Costs, Expenses and Taxes. In addition to its obligations
under Article XIII, Seller or Parent, as the case may be, agrees to pay within
five Business Days of demand;
(a) all costs and expenses incurred (i) by the Administrator and
Purchaser, and their respective Affiliates, in connection with the
negotiation, preparation, execution and delivery of, and (ii) by the
Administrator, any Program Support Provider and Purchaser and their
respective Affiliates, in connection with the enforcement against Seller
or Parent, as the case may be, of, or any actual or claimed breach by
Seller or Parent, as the case may be, of, this Agreement and the other
Transaction Documents, including, without limitation (A) the reasonable
fees and expenses of counsel to any of such Persons incurred in
connection with any of the foregoing or in advising such Persons as to
their respective rights and remedies under any of the Transaction
Documents, and (B) all reasonable out-of-pocket expenses incurred in
connection with the foregoing (including reasonable fees and expenses of
independent accountants incurred in connection with any review of
Seller's or Parent's, as the case may be, books and records either
pursuant to Section 7.01(c) or otherwise); and
(b) all stamp and other taxes and fees payable or determined to
be payable in connection with the execution, delivery, filing and
recording of this Agreement or the other Transaction Documents, and
agrees to indemnify each Indemnified Party against any liabilities with
respect to or resulting from any delay in paying or omission to pay such
taxes and fees.
SECTION 14.06. No Proceedings. Seller, Parent, Servicer and Fleet
(individually and as Administrator) each hereby agrees that it will not
institute against Purchaser, or join any other Person in instituting against
Purchaser, any insolvency proceeding (namely, any proceeding of the type
referred to in the definition of Event of Bankruptcy) so long as any Commercial
Paper Notes 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 14.07. Confidentiality of Program Information.
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<PAGE> 47
(a) Confidential Information. Each party hereto acknowledges that Fleet
regards the structure of the transactions contemplated by this Agreement to be
proprietary, and each such party severally agrees that:
(i) it will not disclose without the prior consent of Fleet or as
is required or authorized by the Transaction Documents (other than to
the directors, employees, agents, auditors, counsel or affiliates
(collectively, "representatives") of such party, each of whom shall be
informed by such party of the confidential nature of the Program
Information (as defined below) and of the terms of this Section 14.07),
(A) any information regarding the pricing in, or copies of, this
Agreement or any transaction contemplated hereby, (B) any information
regarding the organization, business or operations of Purchaser
generally or the services performed by the Administrator for Purchaser,
or (C) any information which is furnished by Fleet to such party and
which is designated by Fleet to such party in writing or otherwise as
confidential or not otherwise available to the general public (the
information referred to in clauses (A), (B) and (C) is collectively
referred to as the "Program Information"); provided, however, that such
party may disclose any such Program Information (I) to any other party
to this Agreement for the purposes contemplated hereby, (II) as may be
required by any Governmental Authority having or claiming to have
jurisdiction over such party, (III) in order to comply with Applicable
Law, (IV) to the underwriters for securities to be issued by the Parent,
and their counsel, and the Securities and Exchange Commission in
connection with any public offering of such securities (provided that in
no event shall such disclosure include the Fee Letter) or (v) subject to
subsection (c), in the event such party is legally compelled (by
interrogatories, requests for information or copies, subpoena, civil
investigative demand or similar process) to disclose any such Program
Information;
(ii) it will use the Program Information solely for the purposes
of evaluating, administering and enforcing the transactions contemplated
by this Agreement and making any necessary business judgments with
respect thereto; and
(iii) it will, upon demand, return (and cause each of its
representatives to return) to Fleet, all documents or other written
material (other than documents executed by such party) received from
Fleet, as the case may be, in connection with (a)(i)(B) or (C) above and
all copies thereof made by such party which contain the Program
Information.
(b) Availability of Confidential Information. This Section 14.07 shall
be inoperative as to such portions of the Program Information which are or
become generally available to the public or such party on a nonconfidential
basis from a source other than Fleet or were known to such party on a
nonconfidential basis prior to its disclosure by Fleet.
(c) Legal Compulsion to Disclose. In the event that any party or anyone
to whom such party or its representatives transmits the Program Information is
requested or becomes legally compelled (by interrogatories, requests for
information or documents, subpoena, civil
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<PAGE> 48
investigative demand or similar process) to disclose any of the Program
Information, such party will, to the extent that it may legally do so,
(i) provide Fleet with prompt written notice so that Fleet may
seek a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Section 14.07; and
(ii) unless Fleet waives compliance by such party with the
provisions of this Section 14.07, make a timely objection to the request
or confirmation to provide such Program Information on the basis that
such Program Information is confidential and subject to the agreements
contained in this Section 14.07.
In the event that such protective order or other remedy is not obtained, or
Fleet waives compliance with the provisions of this Section 14.07, such party
will furnish only that portion of the Program Information which (in such party's
good faith judgment) is legally required to be furnished and will exercise
reasonable efforts to obtain reliable assurance that confidential treatment will
be accorded the Program Information.
(d) Survival. This Section 14.07 shall survive termination of this
Agreement.
SECTION 14.08. Confidentiality of Parent Information.
(a) Confidential Information. Each party hereto acknowledges that Parent
regards certain information to be proprietary, and each such party severally
agrees that:
(i) it will not disclose without the prior consent of Parent or
as is required or authorized by the Transaction Documents (other than to
the directors, employees, agents, auditors, counsel or affiliates
(collectively, "representatives") of such party, each of whom shall be
informed by such party of the confidential nature of the Parent
Information (as defined below) and of the terms of this Section 14.08),
any information which is furnished by Parent to such party and which is
designated by Parent to such party in writing or otherwise as
confidential or not otherwise available to the general public ("Parent
Information"); provided, however, that such party may disclose any such
Parent Information (I) to any other party to this Agreement for the
purposes contemplated hereby, (II) as may be required by any
Governmental Authority having or claiming to have jurisdiction over such
party, (III) in order to comply with any Applicable Law, (IV) subject to
subsection (c), in the event such party is legally compelled (by
interrogatories, requests for information or copies, subpoena, civil
investigative demand or similar process) to disclose any such Program
Information, (V) to any Affected Party, (VI) to the Rating Agencies, or
(VII) to any potential Liquidity Bank or any potential assignee or
participant of any Liquidity Bank, and any placement agent for, or
investor or potential investor in, the Commercial Paper Notes, provided,
in each case set forth in this clause
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<PAGE> 49
(VII), that such Person has agreed to be bound by confidentiality
restrictions substantially similar to this Section 14.08 ; and
(ii) it will use the Parent Information solely for the purposes
of evaluating, administering and enforcing the transactions contemplated
by this Agreement and making any necessary business judgments with
respect thereto.
(b) Availability of Confidential Information. This Section 14.08 shall
be inoperative as to such portions of the Parent Information which are or become
generally available to the public or such party on a nonconfidential basis from
a source other than Parent or were known to such party on a nonconfidential
basis prior to its disclosure by Parent.
(c) Legal Compulsion to Disclose. In the event that any party or anyone
to whom such party or its representatives transmits the Parent Information is
requested or becomes legally compelled (by interrogatories, requests for
information or documents, subpoena, civil investigative demand or similar
process) to disclose any of the Parent Information, such party will, to the
extent that it may legally do so,
(i) provide Parent with prompt written notice so that Parent may
seek a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Section 14.08; and
(ii) unless Parent waives compliance by such party with the
provisions of this Section 14.08, make a timely objection to the request
or confirmation to provide such Parent Information on the basis that
such Parent Information is confidential and subject to the agreements
contained in this Section 14.08.
In the event that such protective order or other remedy is not obtained, or
Parent waives compliance with the provisions of this Section 14.08, such party
will furnish only that portion of the Parent Information which (in such party's
good faith judgment) is legally required to be furnished and will exercise
reasonable efforts to obtain reliable assurance that confidential treatment will
be accorded the Parent Information.
(d) Survival. This Section 14.08 shall survive termination of this
Agreement.
SECTION 14.09. Captions and Cross References. The various captions
(including, without limitation, the table of contents) in this Agreement are
provided solely for convenience of reference and shall not affect the meaning or
interpretation of any provision of this Agreement. Unless otherwise indicated,
references in this Agreement to any Section, Appendix, Schedule or Exhibit are
to such Section of or Appendix, Schedule or Exhibit to this Agreement, as the
case may be, and references in any Section, subsection, or clause to any
subsection, clause or subclause are to such subsection, clause or subclause of
such Section, subsection or clause.
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<PAGE> 50
SECTION 14.10. Integration. This Agreement and the other Transaction
Documents contain 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 understanding among the parties hereto with respect to the
subject matter hereof, superseding all prior oral or written understandings.
SECTION 14.11. GOVERNING LAW. THIS AGREEMENT, INCLUDING THE RIGHTS AND
DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION
OF THE INTERESTS OF THE ADMINISTRATOR IN THE POOL ASSETS IS GOVERNED BY THE LAWS
OF THE JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 14.12. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER TRANSACTION
DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY
BE IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING
OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT A JURY TRIAL.
SECTION 14.13. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. EACH OF
PARENT AND SELLER HEREBY ACKNOWLEDGES AND AGREES THAT:
(a) IT HEREBY IRREVOCABLY (I) SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT
SITTING IN THE BOROUGH OF MANHATTAN, STATE OF NEW YORK, OVER ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO ANY TRANSACTION DOCUMENT;
(II) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY
BE HEARD AND DETERMINED IN SUCH STATE OR UNITED STATES FEDERAL COURT;
(III) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE
OF SUCH ACTION OR PROCEEDING; (IV) CONSENTS TO THE SERVICE OF ANY AND
ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
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<PAGE> 51
COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SPECIFIED IN
SECTION 14.02; AND (V) TO THE EXTENT ALLOWED BY LAW, AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION 14.13 SHALL AFFECT THE
ADMINISTRATOR'S OR PURCHASER'S RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO BRING ANY ACTION OR PROCEEDING AGAINST ANY
OF SELLER OR PARENT OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTIONS.
(b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY
IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT.
SECTION 14.14. 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.
SECTION 14.15. No Recourse Against Other Parties. No recourse under any
obligation, covenant or agreement of Purchaser contained in this Agreement shall
be had against any stockholder (solely in its capacity as stockholder),
employee, officer, director, member or incorporator of Purchaser, provided,
however, that nothing in this Section 14.15 shall relieve any of the foregoing
Persons from any liability which such Person may otherwise have for his/her or
its gross negligence or willful misconduct.
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<PAGE> 52
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:
Name Printed:
Title:
MAXTOR CORPORATION, as initial Servicer
By:
Name Printed:
Title:
BLUE KEEL FUNDING, LLC,
as Purchaser
By:
Name Printed:
Title:
FLEET NATIONAL BANK, as Administrator
By:
Name Printed:
Title:
S-1
<PAGE> 53
SCHEDULE 6.01(m)
LIST OF OFFICES OF SELLER WHERE RECORDS ARE KEPT
Maxtor Receivables Corporation
510 Cottonwood Drive
Milpitas, California 95035
<PAGE> 54
SCHEDULE 6.01(n)
LIST OF LOCK-BOX BANKS
First Union National Bank
1345 Chestnut Street
Philadelphia, PA 19101-7618
Attention: Jeffrey Levy
Account No. 0109-7086
<PAGE> 55
SCHEDULE 7.01(e)
FORMS OF CONTRACTS
<PAGE> 56
SCHEDULE 7.01(g)
DESCRIPTION OF CREDIT AND COLLECTION POLICY
<PAGE> 57
SCHEDULE 14.02
NOTICE ADDRESSES
Purchaser:
Blue Keel Funding, LLC
c/o Global Securitization Services, LLC
25 West 43rd Street, Suite 704
New York, New York 10036
Telephone: 212/302-5157
Facsimile: 212/302-8767
Administrator:
Fleet National Bank
Fleet Corporate Finance
One Federal Street, Third Floor
Boston, Massachusetts 02211
Attention: Paul Schmieder
Telephone: 617/346-0255
Facsimile: 617/346-4690
Seller:
Maxtor Receivables Corporation
510 Cottonwood Drive
Milpitas, California 95035
Attention: Raja Venkatesh, Treasurer
Parent:
Maxtor Receivables Corporation
510 Cottonwood Drive
Milpitas, California 95035
Attention: Raja Venkatesh, Treasurer
Telephone: 408/432-4755
Facsimile: 408/432-4480
<PAGE> 58
EXHIBIT 5.01
FORM OF LOCK-BOX AGREEMENT
[Letterhead of Seller]
LOCK-BOX AGREEMENT
___________, 199__
[Name and Address of
Lock-Box Bank]
Ladies and Gentlemen:
Reference is made to our [lock-box]* account[s]
no[s]. maintained with you (the "Account[s]"). Pursuant to a Receivables
Purchase Agreement dated as of July 31, 1998 among us, as Seller, Blue Keel
Funding, LLC ("Blue Keel"), as Purchaser, Maxtor Corporation, as Servicer, and
Fleet National Bank, as administrator (the "Administrator"), we have assigned
and/or may hereafter assign to the Administrator, for the benefit of Blue Keel
and its assigns, one or more undivided percentage interests in accounts, chattel
paper, instruments or general intangibles (collectively, "Receivables") with
respect to which payments are or may hereafter be made to the Account[s], and
have granted to the Administrator, for the benefit of Blue Keel and its assigns,
a security interest in such Receivables, the Account[s], amounts on deposit
therein and related property. Your execution of this letter agreement is a
condition precedent to our continued maintenance of the Account[s] with you.
We hereby transfer exclusive ownership and control of the Account[s] to the
Administrator on behalf of Blue Keel and its assigns, subject only to the
condition subsequent that the Administrator shall have given you notice of its
election to assume such ownership and control, which notice may be in the form
attached hereto as Exhibit A or in any other form that gives you reasonable
notice of such election.
We hereby irrevocably instruct you, at all times from and after the date of
your receipt of notice from the Administrator as described above, to make all
payments to be made by you out of
- --------------------------------
*/ Delete in the case of direct wire transfer accounts.
<PAGE> 59
or in connection with the Account[s] directly to the Administrator, at its
address set forth below its signature hereto or as the Administrator otherwise
notifies you, for the account of Blue Keel (account #__________, ABA
#_________), or otherwise in accordance with the instructions of the
Administrator.
We also hereby notify you that, at all times from and after the date of
your receipt of notice from the Administrator as described above, the
Administrator shall be irrevocably entitled to exercise in our place and stead
any and all rights in respect of or in connection with the Account[s],
including, without limitation, (a) the right to specify when payments are to be
made out of or in connection with the Account[s] and (b) the right to require
preparation of duplicate monthly bank statements on the Account[s] for the
Administrator's audit purposes and mailing of such statements directly to an
address specified by the Administrator.
Notice from the Administrator may be personally served or sent by facsimile
or U.S. mail, certified return receipt requested, to the address or facsimile
number set forth under your signature to this letter agreement (or to such other
address or facsimile number as to which you shall notify the Administrator in
writing). If notice is given by facsimile, it will be deemed to have been
received when the notice is sent and the receipt is confirmed by telephone or
other electronic means. All other notices will be deemed to have been received
when actually received or, in the case of personal delivery, delivered.
By executing this letter agreement, you acknowledge and consent to the
existence of the Administrator's right to ownership and control of the
Account[s] and the Administrator's security interest in the Account[s] and
amounts from time to time on deposit therein and agree that from the date hereof
the Account[s] shall be maintained by you for the benefit of, and amounts from
time to time therein held by you as agent for, the Administrator on the terms
provided herein. The Account[s] [is/are] to be titled "Maxtor Receivables
Corporation and Fleet National Bank as the Administrator for Blue Keel and its
assigns, as their interests may appear". Except as otherwise provided in this
letter agreement, payments to the Account[s] are to be processed in accordance
with the standard procedures currently in effect. All service charges and fees
with respect to the Account[s] shall continue to be payable by us as under the
arrangements currently in effect.
By executing this letter agreement, you irrevocably waive and agree not to
assert, claim or endeavor to exercise, irrevocably bar and estop yourself from
asserting, claiming or exercising, and acknowledge that you have not heretofore
received a notice, writ, order or any form of legal process from any other
person or entity asserting, claiming or exercising, any right of set-off,
banker's lien or other purported form of claim with respect to [any of] the
Account[s] or any funds from time to time therein. Except for your right to
payment of your service charges and fees and to make deductions for returned
items, you shall have no rights in the Account[s] or funds therein. To the
extent you may ever have such rights, you hereby expressly subordinate all such
rights to all rights of the Administrator.
2
<PAGE> 60
You may terminate this letter agreement by canceling the Account[s]
maintained with you, which cancellation and termination shall become effective
only upon thirty days' prior written notice thereof from you to the
Administrator. Incoming [mail addressed to] [wire transfers to] the Account[s]
received after such cancellation shall be forwarded in accordance with the
Administrator's instructions. This letter agreement may also be terminated upon
written notice to you by the Administrator stating that the Receivables Purchase
Agreement pursuant to which this letter agreement was obtained is no longer in
effect. Except as otherwise provided in this paragraph, this letter agreement
may not be terminated or amended without the prior written consent of the
Administrator. This letter agreement may be executed in any number of
counterparts, and by the parties hereto on 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.
3
<PAGE> 61
Please acknowledge your agreement to the terms set forth in this letter
agreement by signing the two copies of this letter agreement enclosed herewith
in the space provided below, sending one such signed copy to the Administrator
at its address provided above and returning the other signed copy to us.
Very truly yours,
MAXTOR RECEIVABLES CORPORATION
By:
----------------------------------
Name:
Title:
-------------------------------
Acknowledged and agreed to as of the
date first written above:
BLUE KEEL FUNDING, LLC
By:
Name:
Title:
FLEET NATIONAL BANK, as Administrator
By:
Name:
Title:
Address for notice:
Fleet Corporate Finance
Mail Stop MA-OF-DO36
One Federal Street, Third Floor
Boston, Massachusetts 02211
Tel. No. 617/346-0255
Facsimile No. 617/346-4690
4
<PAGE> 62
[NAME OF LOCK-BOX BANK]
By:
Name:
Title:
Address for notice:
Attention:
----------------------------
Tel. No.: Facsimile No.:
---------- ----
5
<PAGE> 63
EXHIBIT A to
Lock-Box Agreement
[Letterhead of Fleet National Bank]
[Name and Address
of Lock-Box Bank]
Re: Maxtor Receivables Corporation
[Lock-Box]**/ Account No[s]. [and ]
Ladies and Gentlemen:
Reference is made to the letter agreement dated ________________, 199__
(the "Letter Agreement") among Maxtor Receivables Corporation, Blue Keel
Funding, LLC ("Blue Keel"), the undersigned, as Administrator and you concerning
the above described [lock-box]* account[s] (the "Account[s]"). We hereby give
you notice of our assumption of ownership and control of the Account[s] as
provided in the Letter Agreement.
We hereby instruct you to make all payments to be made by you out of or in
connection with the Account[s] [directly to the undersigned, at [our address set
forth above], for the account of Blue Keel (account no. ______)].
[other instructions]
Very truly yours,
FLEET NATIONAL BANK, as Administrator
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
- --------------------------
**/ Delete in the case of direct wire transfer accounts.
<PAGE> 1
EXHIBIT 10.170
APPENDIX A
DEFINITIONS
This is Appendix A to the Receivables Purchase Agreement dated as of
July 31, 1998 among Maxtor Receivables Corporation, as Seller, Blue Keel
Funding, LLC, as Purchaser, Maxtor Corporation, as initial Servicer, and Fleet
National Bank, as Administrator (as amended, supplemented or otherwise modified
from time to time, the "Agreement"). Unless otherwise indicated, all Section,
Exhibit and schedule references in this Appendix are to Sections of and Exhibits
and Schedules to the Agreement.
A. Defined Terms. As used in the Agreement, unless the context requires a
different meaning, the following terms have the meanings indicated hereinbelow:
"Administrator" has the meaning set forth in the preamble.
"Administrator's Office" means the office of the Administrator at One
Federal Street, Third Floor, Boston, Massachusetts 02211 or such other address
as shall be designated by the Administrator in writing to Seller and
Purchaser.
"Affected Party" means each of Purchaser, each Program Support Provider,
any assignee or participant of Purchaser or any Program Support Provider, Fleet,
any successor to Fleet as Administrator, and any sub-agent of the Administrator.
"Affiliate" when used with respect to a Person means any other Person,
directly or indirectly, controlling, controlled by, or under common control with
such Person, except, when used with respect to the Purchaser, Affiliate shall
mean the holder(s) of its limited liability company interests.
"Allocation Limit" has the meaning set forth in Section 1.01.
"Alternate Base Rate" means, on any date, a fluctuating rate of
interest per annum equal to the higher of
(a) the rate of interest most recently announced by the Liquidity
Agent in Boston, Massachusetts, as its prime rate; and
(b) the Federal Funds Rate most recently determined by the Liquidity
Agent plus 0.50% per annum.
The Alternate Base Rate is not necessarily intended to be the lowest rate of
interest determined by the Liquidity Agent in connection with extensions of
credit.
<PAGE> 2
"Applicable Law" means all existing and future applicable laws, rules,
regulations (including proposed, temporary and final income tax regulations),
statutes, treaties, codes, ordinances, permits, certificates, orders and
licenses of and interpretations by any Governmental Authority, and applicable
judgments, decrees, injunctions, writs, orders or like action of any court,
arbitrator or other administrative, judicial or quasi-judicial tribunal or
agency of competent jurisdiction.
"Asset Interest" means an undivided ownership or security interest
determined from time to time as provided in Section 1.04(b) in all Pool Assets.
"Business Day" means a day other than a Saturday or a Sunday on which both
(a) the Administrator at its principal office in Boston, Massachusetts is open
for business and (b) commercial banks in New York City, Chicago, Illinois and
San Francisco, California are not authorized or required to be closed for
business.
"Canadian Receivable" means a Receivable the Obligor of which is a
resident of Canada and which is not a Subsidiary of International Business
Machines Corporation.
"Canadian Receivables Limit" at any time means an amount equal to the
product of (i) the aggregate Unpaid Balance of all Eligible Receivables at such
time, times (ii) 10%.
"Capital" means at any time with respect to the Asset Interest an amount
equal to (a) the aggregate of the amounts theretofore paid to Seller for
Purchases pursuant to Section 1.01, less (b) the aggregate amount of Collections
theretofore received and actually distributed to Purchaser on account of the
Capital pursuant to Section 3.01.
"Capital Lease" means, as applied to any Person, any lease of any property
(whether real, personal or mixed) by such Person as lessee which would, in
accordance with GAAP, be required to be classified and accounted for as a
capital lease on a balance sheet of such Person, other than, in the case of
Parent or any of its Subsidiaries, any such lease under which Parent or a
wholly-owned Subsidiary of Parent is the lessor.
"Change in Control" means any of the following:
(a) in relation to Parent, the acquisition by any person or group of
persons (within the meaning of Section 13 or 14 of the Exchange Act) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under the Exchange Act) of issued and
outstanding shares of the capital stock of Parent entitled (without regard
to the occurrence of any contingency) to vote for the election of members
of the board of directors of Parent and having a then present right to
exercise 51% or more of the voting power for the election of members of
the board of directors of Parent attached to
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<PAGE> 3
all such outstanding shares of capital stock of Parent, unless otherwise
agreed in writing by the Liquidity Banks and the Administrator; or
(b) the creation or imposition of any Lien on any shares of capital
stock of Seller; or
(c) the failure by Parent to own all of the issued and outstanding
capital stock of Seller and each Originator (other than Parent).
"Collections" means, with respect to any Receivable, all funds which
either (a) are received by Seller, Servicer, an Originator or any other Person
from or on behalf of the related Obligors in payment of any amounts owed
(including, without limitation, purchase prices, finance charges, interest and
all other charges) in respect of such Receivable, or applied to such amounts
owed by such Obligors (including, without limitation, insurance payments that
Seller, an Originator or Servicer applies in the ordinary course of its business
to amounts owed in respect of such Receivable and net proceeds of sale or other
disposition of repossessed goods or other collateral or property of the Obligor
or any other party directly or indirectly liable for payment of such Receivable
and available to be applied thereon), or (b) are deemed to have been received by
Seller or any other Person as a Collection pursuant to Section 3.02.
"Commercial Paper Holders" means the holders from time to time of the
Commercial Paper Notes.
"Commercial Paper Notes" means short-term promissory notes issued or to be
issued by Purchaser, or the proceeds of which are loaned to Purchaser, to fund
its investments in accounts receivable or other financial assets.
"Commitment Fee" means, for each day, the amount equal to the product of
(x) the unused Liquidity Commitment Amount on such day, times (y) the Commitment
Fee Rate, times (z) 1/360.
"Commitment Fee Rate" has the meaning set forth in the Fee Letter.
"Concentration Limit" for any Obligor at any time means an amount equal to
(i) the aggregate Unpaid Balance of all Eligible Receivables at such time times
(ii) the applicable percentage as set forth below opposite the appropriate
ratings of such Obligor's long-term and short-term unsecured debt; provided that
(i) as long as International Business Machines Corporation's long term unsecured
debt is rated at least A+ by S&P and A+ by Moody's, its applicable percentage
shall be 40.0%, (ii) as long as Compaq's long term unsecured debt is rated at
least BBB+ by S&P, its applicable percentage shall be 20.0%, and (iii) as long
as Dell Computer's long term unsecured debt is rated at least BBB- by S&P and
Baa3 by Moody's, its applicable percentage, shall be 10.0%. Any Obligor that has
a split rating shall be deemed to be in the lower rating category.
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<PAGE> 4
<TABLE>
<CAPTION>
Long Term Rating Short-Term Rating
- ----------------------------------------- ------------------------ Applicable
S&P Moody's S&P Moody's Percentage
- ------------ -------------- ----------- ------- ----------
<S> <C> <C> <C> <C>
A+ or better A+ or better A-1 P-1 40.0%
BBB+ to A Baa1 to A2 A-2 P-2 20.0%
BBB- to BBB Baa3 to Baa2 A-3 P-3 10.0%
Not Rated Not Rated 2.5%
</TABLE>
"Consolidated Interest Expense" means, for any period, total interest
expense of the Parent and its consolidated Subsidiaries (including without
limitation, interest expense attributable to Capital Leases, all capitalized
interest, all commissions, discounts and other fees and charges owed with
respect to bankers acceptance financing, net costs (i.e., costs minus benefits)
under Interest Rate Contracts, and total interest expense (whether shown as
interest expense or as loss and expenses on sales of receivables) under a
receivables purchase facility) determined on a consolidated basis in accordance
with GAAP.
"Consolidated Net Income (Loss)" means, with reference to any period, the
net income (or deficit) of the Parent and its consolidated Subsidiaries for such
period (taken as a cumulative whole), after deducting all operating expenses,
provisions for all taxes and reserves (including reserves for deferred income
taxes) and all other proper deductions, all determined in accordance with GAAP
on a consolidated basis, after eliminating all intercompany transactions and
after deducting portions of income properly attributable to minority interests,
if any, in the stock and surplus of the Subsidiaries of the Parent.
"Contract" means a contract between an Originator and any Person, or an
invoice from an Originator to any Person, or any purchase order from any Person
to an Originator pursuant to or under which such Person shall be obligated to
make payments to an Originator. A "related" Contract with respect to the
Receivables means a Contract under which Receivables in the Receivables Pool
arise, which evidence such Receivables, or which is relevant to the collection
or enforcement of such Receivables.
"Contractual Obligation" with respect to any Person, means any provision
of any securities issued by such Person or any indenture, mortgage, deed of
trust, contract, undertaking, agreement, instrument or other document to which
such Person is party or by which it or any of its property is bound or is
subject.
"Credit and Collection Policy" means those credit and collection policies
and practices relating to Contracts and Receivables described in Schedule
7.01(g), as modified without violating Section 7.03(c).
"Cut-Off Date" means the last day of each fiscal month, as set forth on
Schedule I hereto.
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"Deemed Collection" has the meaning set forth in the Purchase Agreement.
"Defaulted Receivable" means a Receivable: (a) as to which any payment, or
part thereof, remains unpaid for more than 90 days from the original due date
for such payment, (b) as to which the Obligor thereof is the subject of an Event
of Bankruptcy, or (c) which, consistent with the Credit and Collection Policy,
would be written off the Seller's books as uncollectible.
"Default Ratio" means the ratio (expressed as a percentage) computed as of
a Cut-Off Date by dividing (x) the aggregate Unpaid Balance of all Past Due
Receivables as of such Cut-Off Date by (y) the aggregate Unpaid Balance of all
Pool Receivables on such date.
"Delinquency Ratio" means the ratio (expressed as a percentage) computed
as of the Cut-Off Date by dividing (x) the aggregate Unpaid Balance of all
Overdue Receivables on such Cut-Off Date by (y) the aggregate Unpaid Balance of
all Pool Receivables on such date.
"Delinquent Receivable" means a Receivable that is not a Defaulted
Receivable and as to which any payment, or part thereof, remains unpaid for more
than 30 days from the original due date for such payment.
"Dilution" means any credit, adjustment, rebate, refund or setoff with
respect to any Receivable granted or allowed by Seller or any Affiliate of
Seller.
"Dilution Reserve" means, at any time, an amount equal to (i) the Net Pool
Balance at such time times (ii) the most recently calculated Dilution Reserve
Percentage.
"Dilution Reserve Percentage" as measured on any Reporting Date means a
percentage determined in accordance with the following formula:
[(SF x ED) + ((DS-ED) x DS/ED)] x DHR where:
SF = the Stress Factor, which shall be 2.5;
ED = the "Expected Dilution", which shall be equal to the
twelve-month rolling average Sales-Based Dilution Ratio,
expressed as a percentage;
DS = the "Dilution Spike", which shall be equal to the highest
one month Sales-Based Dilution Ratio over the immediately
preceding twelve months, expressed as a percentage; and
DHR = the "Dilution Horizon Ratio", which shall be equal to the
Sales for the month ending on the related Cut-Off Date
divided by the aggregate Unpaid Balance of the Eligible
Receivables as of the such Cut-Off Date.
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<PAGE> 6
"Dollars" means dollars in lawful money of the United States of America.
"Dynamic Loss Reserve Percentage" shall be measured as an amount
calculated pursuant to the following formula:
DLRP = LR x LH x SF
where:
DLRP = the Dynamic Loss Reserve Percentage;
LR = the Loss Ratio, which shall be equal to the highest average
of the Sales- Based Default Ratios for any three consecutive
calendar months during the previous twelve calendar months;
LH = the Loss Horizon, which shall be equal to the cumulative
Sales over the previous three months divided by the Net Pool
Balance as of the most recent Cut-Off Date; and
SF = the Stress Factor, which shall be 2.
"Earned Discount" means for any Settlement Period:
C x ER x ED + LF
----------------
360
where:
C = the daily average (calculated at the close of business each
day) of the Capital during such Settlement Period,
ER = the Earned Discount Rate for such Settlement Period,
ED = the actual number of days elapsed during such Settlement
Period, and
LF = the Liquidation Fee, if any, during such Settlement Period.
"Earned Discount Rate" means for any Settlement Period:
(a) in the case of any portion of the Capital funded by a Liquidity
Funding, at the option of Seller as set forth in a written notice
delivered to the Administrator at least three (3) Business Days prior to
the first day of such Settlement Period, (1) the sum of (i) the Eurodollar
Rate (Reserve Adjusted) for such Settlement Period, plus (ii) 2.50% per
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<PAGE> 7
annum or (2) the sum of (i) the Alternative Base Rate in effect from time
to time during such Settlement Period, plus (ii) 0.50% per annum; and
(b) in the case of any portion of the Capital funded by any
Commercial Paper Notes, the LIBOR for such Settlement Period;
provided, however, that on any day during a Settlement Period when any
Liquidation Event or Unmatured Liquidation Event shall have occurred and be
continuing, the Earned Discount Rate for the Capital shall mean the higher of
(i) the Alternate Base Rate in effect on such day plus 2% per annum and (ii) the
LIBOR for such Settlement Period plus 3.50% per annum.
"EBITDAR" shall mean for any period, the Consolidated Net Income (Loss) of
the Parent and its consolidated Subsidiaries, plus, to the extent deducted
therefrom in determining Consolidated Net Income (Loss), the sum of (i)
Consolidated Interest Expense, (ii) provision for income taxes (whether paid or
deferred), (iii) Rental Obligations for such period, and (iv) depreciation and
amortization, and without giving effect to any extraordinary gains or losses,
and any other non-cash charges or gains or losses, including but not limited to,
gains or losses from sales of assets other than inventory sold in the ordinary
course of business.
"EBITDAR Ratio" as of the last day of any fiscal quarter means the ratio
of (i) EBITDAR for the four consecutive fiscal quarters ending on such date
divided by (ii) the Fixed Charges for such four consecutive fiscal quarters
(provided that for the last day of the fiscal quarter ending in June of 1998,
such ratio shall be calculated by annualizing the three consecutive fiscal
quarters ending on such date).
"Eligible Contract" means a Contract in one of the forms set forth in
Schedule 7.01(e) or otherwise approved by the Administrator.
"Eligible Receivable" means, at any time, a Receivable:
(a) which is originated by an Originator in the ordinary course of
its business for the sale of hard disk drives;
(b) which constitutes an account as defined in the UCC;
(c) the Obligor of which is not an Affiliate of Seller and is not a
Governmental Authority;
(d) which was purchased or otherwise acquired by Seller pursuant to
the Purchase Agreement and which was designated by the related Originator
as an "Eligible Receivable" pursuant to the Purchase Agreement;
(e) which is not a Delinquent Receivable or a Defaulted
Receivable;
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<PAGE> 8
(f) with respect to which the warranty of Seller in Section 6.01(k)
is true and correct;
(g) the sale of which, or of an undivided interest in which, does
not contravene or conflict with Applicable Law, or require the consent of
the Obligor or any other Person;
(h) which is denominated and payable only in Dollars in the United
States;
(i) which arises under an Eligible Contract, which contract has been
duly authorized by the parties thereto and that, together with such
Receivable, is in full force and effect and constitutes the legal, valid
and binding obligation of the Obligor of such Receivable enforceable
against such Obligor in accordance with its terms and is not subject to
any defense whatsoever (other than discharge in bankruptcy and payment);
(j) which, together with the Contract related thereto, does not
contravene in any material respect any Applicable Law and with respect to
which no party to the Contract related thereto is in violation of any
Applicable Law;
(k) which (i) satisfies all material applicable requirements of the
Credit and Collection Policy and (ii) complies with such other criteria
and requirements (other than those relating to the collectibility of such
Receivable) as the Administrator may from time to time specify to Seller;
(l) as to which the payment terms have not been altered or extended
so as to materially affect the collectibility of such Receivable;
(m) the Unpaid Balance of which is payable within 45 days or less
from the invoice date therefor;
(n) which are not Receivables owed by an Obligor for which more than
20% of the aggregate Unpaid Balance of Receivables of such Obligor
constitute Defaulted Receivables;
(o) which arise from the completion of the sale and delivery of
goods and services performed, and which do not represent an invoice in
advance of such completion; and
(p) which are not subject to any contingent performance requirements
of the Seller or the related Originator unless such requirements are
guaranteed or insured by third parties acceptable to the Administrator.
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<PAGE> 9
"Equity Proceeds" means the net proceeds received by Parent or any of its
Subsidiaries from the sale of stock or convertible subordinated debt.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurodollar Rate (Reserve Adjusted)" means, with respect to any Settlement
Period and any portion of the Capital, a rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined pursuant to the following
formula:
Eurodollar Rate = Eurodollar Rate
----------------- ---------------
(Reserve Adjusted) 1 - Eurodollar
Reserve Percentage
where:
"Eurodollar Rate" means, with respect to any Settlement Period and any
portion of the Capital, the rate per annum at which Dollar deposits in
immediately available funds are offered to the Eurodollar Office of the
Administrator two Eurodollar Business Days prior to the beginning of such
period by prime banks in the interbank eurodollar market at or about 11:00
a.m., New York City time for delivery on the first day of such Settlement
Period, for the number of days comprised therein and in an amount equal or
comparable to the applicable portion of the Capital for such Settlement
Period.
"Eurodollar Business Day" means a day of the year on which dealings are
carried on in the eurodollar interbank market and banks are open for
business in London and are not required or authorized to close in New York
City.
"Eurodollar Reserve Percentage" means, with respect to any Settlement
Period, the then maximum reserve percentage (expressed as a decimal,
rounded upward to the nearest 1/100th of 1%) prescribed by the Federal
Reserve Board for determining the maximum reserve requirements applicable
to "Eurocurrency Liabilities" pursuant to Regulation D having a term
comparable to such Settlement Period.
"Event of Bankruptcy" shall be deemed to have occurred with respect to a
Person if either:
(a) any case or other proceeding shall be commenced, without the
application or consent of such Person, in any court, seeking the
liquidation, reorganization, debt arrangement, dissolution, winding up, or
composition or readjustment of debts of such Person, the appointment of a
trustee, receiver, custodian, liquidator, assignee, sequestrator or the
like for such Person or all or substantially all of its assets, or any
similar action with respect to such Person under any law relating to
bankruptcy, insolvency, reorganization, winding up or composition or
adjustment of debts, and such case or proceeding shall
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<PAGE> 10
<PAGE> 11
continue undismissed, or unstayed and in effect, for a period of 60
consecutive days; or an order for relief in respect of such Person shall
be entered in an involuntary case under the federal bankruptcy laws or
other similar laws now or hereafter in effect and shall either not be
contested or shall remain undismissed for 60 consecutive days; or
(b) such Person shall commence a voluntary case or other proceeding
under any applicable bankruptcy, insolvency, reorganization, debt
arrangement, dissolution or other similar law now or hereafter in effect,
or shall consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) for such Person or for any substantial part of its property, or
shall make any general assignment for the benefit of creditors, or shall
fail to, or admit in writing its inability to, pay its debts generally as
they become due, or, if a corporation or similar entity, its board of
directors shall vote to implement any of the foregoing.
"Excess Amount" as of any date, means the amount, if any, by which the sum
of the Capital, plus the Required Reserves on such date exceeds the Net Pool
Balance, as most recently calculated.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal (for each day during such period) to
(a) 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
(b) if such rate is not so published for any day which is a Business
Day, the average of the quotations for such day on such transactions
received by Fleet from three federal funds brokers of recognized standing
selected by it.
"Fee Letter" has the meaning set forth in Section 4.01.
"Fees" means the Commitment Fee and the Program Fee.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any successor thereto or to the functions thereof.
"Final Payout Date" means the date following the Termination Date on which
the Capital shall have been reduced to zero and all other amounts payable by
Seller to Purchaser, the Administrator, the Affected Parties and the Indemnified
Parties under the Transaction Documents shall have been paid in full.
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<PAGE> 12
"Fixed Charges" shall mean, with reference to any period, determined in
accordance with GAAP on a consolidated basis, the sum of the following for the
Parent and its consolidated Subsidiaries, after eliminating all intercompany
items:
(a) Consolidated Interest Expense for such period; and
(b) all Rental Obligations payable as lessee under any operating lease
properly charged or chargeable to income during such period in
accordance with GAAP;
provided that any interest charges or rentals paid or accrued by any Person
acquired by the Parent or any of its Subsidiaries during such period, through
purchase, merger, consolidation or otherwise, shall be included in "Fixed
Charges" only to the extent that the earnings of such Person are taken into
account in determining EBITDAR for such period.
"Fleet" has the meaning set forth in the preamble.
"Foreign Receivable" means a Receivable the Obligor of which is not a
resident of the United States or any of its possessions or territories or Canada
and which is not a Subsidiary of International Business Machines Corporation.
"Foreign Receivables Limit" at any time means an amount equal to the
product of (i) the aggregate Unpaid Balance of all Eligible Receivables at such,
times (ii) 10%.
"GAAP" means generally accepted accounting principles as in effect in the
United States from time to time.
"Governmental Action" means all permits, authorizations, registrations,
consents, approvals, waivers, exceptions, variances, orders, judgements,
decrees, licenses, exemptions, publications, filings, notices to and declaration
of or with, or required by, any Governmental Authority, or required by any
Applicable Law.
"Governmental Authority" means any foreign or domestic federal, state,
county, municipal or other governmental or regulatory authority, agency, board,
body, commission, instrumentality, court or any political subdivision thereof.
"Indemnified Amounts" has the meaning set forth in Section 13.01.
"Indemnified Party" has the meaning set forth in Section 13.01.
"Independent Director" shall mean an individual who is not, and never was,
(1) a member, stockholder, director, officer, employee, Affiliate, customer or
supplier of, or an individual that has received any benefit (excluding, however,
any compensation received in such individual's capacity as Independent Director)
in any form whatever from, or an individual who has provided
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<PAGE> 13
any service (excluding, however, any service provided by such individual in such
individual's capacity as Independent Director) in any form whatever to, the
Parent or any of its subsidiaries or Affiliates, or (2) an individual owning
beneficially, directly or indirectly, any interest in the Parent, or a
stockholder, director, officer, employee, Affiliate, customer or supplier
thereof, or an individual who has received any direct economic benefit
(excluding, however, any compensation received in such individual's capacity as
Independent Director) in any form whatever from, or an individual who has
provided any service (excluding, however, any service provided by such
individual in such individual's capacity as Independent Director) in any form
whatever to, such beneficial owner or any of such beneficial owner's Affiliates,
or (3) an individual who is a relative or spouse of an individual described in
clause (1) or (2) above.
"Interest Rate Contract" means all interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements, interest rate insurance
and other agreements and arrangements designed to provide protection against
fluctuations in interest rates, in each case as the same may be from time to
time amended, restated, renewed, supplemented or otherwise modified.
"Investment" means, when used with respect to any Person, any direct or
indirect advance, loan or other extension of credit (other than the creation of
receivables in the ordinary course of business) or capital contribution by such
Person (by means of transfers of property to others or payments for property or
services for the account or use of others, or otherwise) to any Person, or any
direct or indirect purchase or other acquisition by such Person of, or of a
beneficial interest in, capital stock, partnership interests, bonds, notes,
debentures or other securities issued by any other Person.
"IPO" means the initial public offering of the capital stock of Parent
pursuant to which the Parent receives at least $310,000,000 in net proceeds.
"LIBOR" means, with respect to any Settlement Period or portion thereof,
the rate of interest (expressed as an annual rate and rounded upwards, if
necessary, to the nearest 1/16th of 1%) at which deposits in Dollars would be
offered by principal London offices of banks at approximately 11:00 a.m. (London
time) on the first day of the Settlement Period or portion thereof for the
period from that day to the next Settlement Date. For periods which extend from
one Settlement Date to the next Settlement Date, the applicable rate will be the
one-month LIBOR rate which appears on Telerate page 3750 as of 9:00 a.m. (Boston
time) or as soon thereafter as practicable. For periods which begin on a day
other than a Settlement Date, the applicable rate will be the rate equal to the
average (rounded up to the nearest 1/16th of 1%) of the rates shown on the
display referred to as the "LIBO" page (or any display substituted therefor) of
the Telerate matrix (presently page 5) for a period of time from that day to the
next Settlement Date. The determination of the applicable LIBOR rate by
Purchaser shall be conclusive in the absence of demonstratable error.
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<PAGE> 14
"Lien" means any mortgage, lien, pledge, encumbrance, charge, title
retention or other security interest of any kind, whether arising under a
security agreement, mortgage, deed of trust, assignment, pledge or financing
statement or arising as a matter of law, judicial process or otherwise.
"Liquidation Event" has the meaning set forth in Section 10.01.
"Liquidation Fee" means, for each day in any Settlement Period during the
Liquidation Period following the occurrence of a Liquidation Event, the amount,
if any, by which:
(a) the additional Earned Discount (calculated without taking into
account any Liquidation Fee) which would have accrued on the reductions of
the Capital during such Settlement Period (as so computed) if such
reductions had not been made, exceeds
(b) the income, if any, received by Purchaser from investing the
proceeds of such reductions of the Capital.
"Liquidation Period" means the period commencing on the date on which the
conditions precedent to Purchases and Reinvestments set forth in Section 5.02
are not satisfied (or expressly waived by Purchaser) and the Administrator shall
have notified Seller and Servicer in writing that the Liquidation Period has
commenced, and ending on the Final Payout Date.
"Liquidity Agent" means Fleet, as agent for the Liquidity Banks under the
Liquidity Agreement, or any successor to Fleet in such capacity.
"Liquidity Agreement" means and includes the Liquidity Agreement dated as
of July 31, 1998 among Purchaser, Fleet, as Liquidity Agent, and certain other
financial institutions, party thereto as liquidity providers, and any other
agreement hereafter entered into by Purchaser providing for the making of loans,
purchases or undivided interests or other extensions of credit to Purchaser to
support all or part of Purchaser's payment obligations with respect to the
Commercial Paper Notes or to provide an alternate means of funding Purchaser's
investments in accounts receivable or other financial assets, and under which
the amount available from such extensions of credit is limited to an amount
calculated by reference to the value or eligible unpaid balance of such accounts
receivable or other financial assets or any portion thereof or the level of
deal-specific credit enhancement available with respect thereto.
"Liquidity Bank" means any one of, and "Liquidity Banks" means all of,
Fleet and the other financial institutions that are at any time parties to a
Liquidity Agreement as liquidity providers.
"Liquidity Commitment Amount" means, at any time, the then aggregate
amount of the Liquidity Banks' commitments under the Liquidity Agreement.
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<PAGE> 15
"Liquidity Funding" means a loan or purchase made by the Liquidity Bank
(or simultaneous loans or purchases made by the Liquidity Banks) pursuant to a
Liquidity Agreement.
"Lock-Box" means any post office box to which Collections of Pool
Receivables are sent.
"Lock-Box Account" means any bank account to which Collections of Pool
Receivables are sent or deposited.
"Lock-Box Agreement" means a letter agreement, in substantially the form
of Exhibit 5.01(f), among Seller, Parent and any Lock-Box Bank.
"Lock-Box Bank" means any of the banks holding one or more Lock-Box
Accounts for receiving Collections from Pool Receivables.
"Loss Reserve" means the product of (A) the greater of (1) 10%; and (2)
the Dynamic Loss Reserve Percentage and (B) the Net Pool Balance.
"Material Adverse Effect" with respect to any event or circumstance, means
a material adverse effect on:
(i) the business, financial condition, assets, prospects or
operations of Seller or Parent;
(ii) the ability of Servicer or Parent to perform its obligations
under this Agreement or any other Transaction Document;
(iii) the validity, enforceability or collectibility of this
Agreement or any other Transaction Document or the validity,
enforceability or collectibility of the Receivables; or
(iv) the status, existence, perfection, priority or enforceability
of the Administrator's or Purchaser's interest in the Pool Assets.
"Monthly Servicer's Fee" means the Servicer's Fee accrued in a calendar
month.
"Moody's" means Moody's Investors Service, Inc.
"Net Pool Balance" at any time means an amount equal to (i) the aggregate
Unpaid Balance of the Eligible Receivables in the Receivables Pool at such time,
minus (ii) the aggregate amount by which the aggregate Unpaid Balance of the
Eligible Receivables of each Obligor and its Affiliates exceeds the
Concentration Limit for such Obligor at such time, minus (iii) the aggregate
amount by which the aggregate Unpaid Balance of Foreign Receivables exceeds the
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<PAGE> 16
Foreign Receivables Limit, minus (iv) the aggregate amount by which the
aggregate Unpaid Balance of Canadian Receivables exceeds the Canadian
Receivables Limit.
"Obligor" means a Person obligated to make payments with respect to a
Receivable, including any guarantor thereof.
"Originator" means the Parent in its capacity as originator of
Receivables, together with any other originator added as a party to the Purchase
Agreement pursuant to the terms thereof.
"Overdue Receivable" means a Receivable that remains unpaid for more than
30 days but no more than 60 days from the original due date for such payment.
"Parent" has the meaning set forth in the preamble.
"Past Due Receivable" means a Receivable that remains unpaid for more than
60 days but no more than 90 days from the original due date for such payment, or
that has been charged off before it has become 61 days past due.
"Permitted Investments" means any one or more of the following
obligations or securities:
(i) direct non-callable obligations of, and non-callable
obligations fully guaranteed by, the United States of America, or
any agency or instrumentality of the United States of America the
obligations of which are backed by the full faith and credit of the
United States of America;
(ii) demand and time deposits in, certificates of deposits of,
and bankers' acceptances issued by, any depository institution or
trust company incorporated under the laws of the United States of
America or any state thereof, having a combined capital and surplus
of at least $250,000,000, and subject to supervision and examination
by federal and/or state banking authorities, so long as at the time
of such investment or contractual commitment providing for such
investment the commercial paper or other short-term debt obligations
of such depository institution or trust company (or, in the case of
a depository institution that is the principal subsidiary of a
holding company, the commercial paper or other short-term debt
obligations of such holding company) have one of the two highest
short-term credit rating available from Moody's and S&P;
(iii) repurchase obligations with respect to and
collateralized by (A) any security described in clause (i) above or
(B) any other security issued or guaranteed by an agency or
instrumentality of the United States of America, in each case
entered into with a depository institution or trust company (acting
as principal) of the type described in clause (ii) above, provided
that the Administrator has taken delivery of such security;
-15-
<PAGE> 17
(iv) commercial paper (including both non-interest-bearing
discount obligations and interest-bearing obligations, but excluding
Commercial Paper Notes) payable on demand or on a specified date not
more than one year after the date of issuance thereof having the
highest short-term credit rating from Moody's and S&P at the time of
such investment; and
(v) shares in a mutual fund investing solely in short term
securities of the United States government and/or securities
described in clause (iii) above where the mutual fund custodian has
taken delivery of the collateralizing securities, provided that (i)
such fund shall have one of the two highest short-term credit rating
available from Moody's and S&P and (ii) such shares shall be freely
transferable by the holder on a daily basis.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company, government or any agency or political
subdivision thereof or any other entity.
"Pool Assets" has the meaning set forth in Section 1.04(a).
"Pool Receivable" means a Receivable in the Receivables Pool.
"Program Agreement" means each Liquidity Agreement, each agreement
pursuant to which Purchaser obtains funding, through the issuance of Commercial
Paper Notes or otherwise, and each other agreement entered into by Purchaser in
connection with its securitization program.
"Program Fee" means, for each day, the amount equal to the product of (x)
the Capital on such day, times (y) the Program Fee Rate, times (z) 1/360.
"Program Fee Rate" has the meaning set forth in the Fee Letter.
"Program Information" has the meaning set forth in Section 14.07.
"Program Support Provider" means each of each entity that issues
Commercial Paper Notes, each Liquidity Bank and the Administrator.
"Purchase" has the meaning set forth in Section 1.01.
"Purchase Agreement" means the Purchase and Sale Agreement, dated as of
July 31, 1998, among Seller and the Originators.
"Purchase Limit" has the meaning set forth in Section 1.01.
-16-
<PAGE> 18
"Purchase Termination Date" means that day
(a) the Administrator declares a Purchase Termination Date in a
notice to Seller in accordance with Section 10.02(a); or
(b) in accordance with Section 10.02(b), becomes the Purchase
Termination Date automatically.
"Purchaser" has the meaning set forth in the preamble.
"Purchaser's Share" of any amount means the then Asset Interest, expressed
as a percentage, (but not greater than 100%) times such amount.
"Rating Agencies" at any time means those rating agencies then rating the
Commercial Paper Notes.
"Receivable" means any right to payment from a Person, whether
constituting an account, chattel paper, instrument or general intangible,
arising under a Contract and includes the right to payment of any interest or
finance charges and other obligations of such Person with respect thereto.
Indebtedness and other obligations arising from any one transaction, including,
without limitation, indebtedness and other obligations represented by an
individual invoice or agreement, shall constitute a Receivable separate from a
Receivable consisting of the indebtedness and other obligations arising from any
other transaction.
"Receivables Pool" means at any time all then outstanding Receivables,
including, without limitation, Receivables repurchased by Seller under the
Repurchase Agreement, other than Reconveyed Receivables.
"Reconveyed Receivable" means a Receivable for which an Originator has
paid the full Unpaid Balance pursuant to the Purchase Agreement.
"Regulation D" means Regulation D of the Federal Reserve Board, or any
other regulation of the Federal Reserve Board that prescribes reserve
requirements applicable to nonpersonal time deposits or "Eurocurrency
Liabilities" as presently defined in Regulation D, as in effect from time to
time.
"Regulatory Change" means, relative to any Affected Party
(a) any change in (or the adoption, implementation, change in
phase-in or commencement of effectiveness of) any
(i) United States federal or state law or foreign law
applicable to such Affected Party;
-17-
<PAGE> 19
(ii) regulation, interpretation, directive, requirement or
request (whether or not having the force of law) applicable to such
Affected Party of (A) any court, government authority charged with
the interpretation or administration of any law referred to in
clause (a)(i) or of (B) any fiscal, monetary or other authority
having jurisdiction over such Affected Party; or
(iii) GAAP or regulatory accounting principles applicable to
such Affected Party and affecting the application to such Affected
Party of any law, regulation, interpretation, directive, requirement
or request referred to in clause (a)(i) or (a)(ii) above; or
(b) any change in the application to such Affected Party of any
existing law, regulation, interpretation, directive, requirement, request
or accounting principles referred to in clause (a)(i), (a)(ii) or (a)(iii)
above.
"Reinvestment" has the meaning set forth in Section 1.03.
"Related Security" means, with respect to any Pool Receivable: (a) all of
Seller's or the related Originator's right, title and interest in and to all
Contracts that relate to such Pool Receivable; (b) all security interests or
liens and property subject thereto from time to time purporting to secure
payment of such Pool Receivable, whether pursuant to the Contract related to
such Pool Receivable or otherwise; (c) all UCC financing statements covering any
collateral securing payment of such Pool Receivable; (d) all guarantees and
other agreements or arrangements of whatever character from time to time
supporting or securing payment of such Pool Receivable whether pursuant to the
Contract related to such Pool Receivable or otherwise; and (e) all of Seller's
and the related Originator's interest in the merchandise (including returned
merchandise), if any, relating to the sale that gave rise to such Pool
Receivable.
"Rental Obligations" means, with reference to any period, the aggregate
amount of all rental obligations for which the Parent and its consolidated
Subsidiaries are directly or indirectly liable (as lessee or as guarantor or
other surety but without duplication) under all leases in effect at any time
during such period (other than operating leases for motor vehicles, computers,
office equipment and other similar items used in the ordinary course of business
of the Parent and its consolidated Subsidiaries), including all such amounts for
which any Person was liable during the period immediately prior to the date such
Person became a Subsidiary of the Parent or was merged into or consolidated with
the Parent or a Subsidiary of the Parent, as determined in accordance with GAAP.
"Reporting Date" means the sixth Business Day after each Cut-Off Date.
"Repurchase Agreement" means the Repurchase Agreement, dated August 13,
1998, among Seller, Parent, Corporate Receivables Corporation, Citicorp North
America, Inc., as Agent, and Bankers Trust Company, as Trustee.
-18-
<PAGE> 20
"Required Reserves" means, on any day, an amount equal to the sum of (1)
the Dilution Reserve, (2) the Loss Reserve, and (3) the Yield Reserve, in each
case as most recently calculated.
"S&P" means Standard & Poor's Ratings Services.
"Sales" means sales of the Originators which generate trade receivables.
"Sales-Based Default Ratio" means, as of any Cut-Off Date, the ratio,
expressed as a percentage, of (i) the aggregate Unpaid Balance of all Past Due
Receivables for the three successive months occurring immediately prior to the
month ending on such Cut-off Date, divided by (ii) the aggregate billings for
the fifth, sixth and seventh preceding months. For example, as of April 30, the
numerator of the Sales-Based Default Ratio would be the aggregate Unpaid Balance
of all Pool Receivables that were Past Due Receivables as of January 31,
February 28 and March 31; the denominator of the Sales-Based Default Ratio would
be the aggregate billings for the months of October, November and December.
"Sales-Based Dilution Ratio" as of any Cut-Off Date means (a) the
aggregate reduction attributable to Dilutions occurring in the Unpaid Balance of
Pool Receivables which Dilutions were granted during the month ending on such
Cut-Off Date; divided by (b) the aggregate amount of billings for the month
immediately preceding the month ending as of such Cut-Off Date.
"Secured Parties" means Purchaser, the Administrator, the Indemnified
Parties and the Affected Parties.
"Seller" has the meaning set forth in the preamble.
"Seller's Share" of any amount means (x) 100% minus the Asset Interest
(but such Asset Interest shall not be greater than 100%) times (y) such amount.
"Servicer" has the meaning set forth in Section 8.01(a).
"Servicer Report" has the meaning set forth in Section 3.01.
"Servicer Transfer Event" has the meaning set forth in Section 8.01(b).
"Servicer's Fee" means, for each day, an amount equal to (x) the
Servicer's Fee Rate, times (y) the aggregate Unpaid Balance of all Pool
Receivables at the close of business on such day, times (z) 1/360.
"Servicer's Fee Rate" means .75% per annum or, in the event that Parent is
no longer the Servicer, such higher rate as may be charged by the successor
Servicer.
-19-
<PAGE> 21
"Settlement Date" means the eighth Business Day following each Cut-Off
Date.
"Settlement Period" means the period (i) in the case of the first
Settlement Period, from, and including, the date of the initial Purchase to, but
excluding the next Settlement Date and (ii) thereafter, from, and including,
each Settlement Date to, but excluding, the next Settlement Date.
"Subsidiary" means a corporation of which Parent and/or its other
Subsidiaries own, directly or indirectly, such number of outstanding shares as
have more than 50% of the ordinary voting power for the election of directors.
"Successor Notice" has the meaning set forth in Section 8.01(b).
"Tangible Net Worth" means, with respect to any Person, the net worth of
such Person calculated in accordance with GAAP after subtracting therefrom the
aggregate amount of such Person's intangible assets, including, without
limitation goodwill, franchises, licenses, patents, trademarks, tradenames,
copyrights and service marks.
"Termination Date" means the earliest of
(a) the date of termination or reduction (whether by scheduled
expiration, termination on default or otherwise) of any Program Support
Provider's commitment under any Program Agreement;
(b) the Purchase Termination Date;
(c) July 31, 2001; and
(d) the date on which Seller terminates Purchaser's right to make
Purchases and Reinvestments pursuant to Section 1.05.
"Transaction Documents" means this Agreement, the Lock-Box Agreements, the
Purchase Agreement, the Fee Letter and other documents to be executed and
delivered in connection herewith.
"Turnover Rate" means, as of any Cut-Off Date, the ratio (expressed as a
percentage) of (i) the aggregate Unpaid Balance of the Pool Receivables as of
such Cut-Off Date, divided by (ii) the aggregate Collections for the month
ending on such Cut-Off Date.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the applicable jurisdiction or jurisdictions.
"Unmatured Liquidation Event" means any event which, with the giving of
notice or lapse of time, or both, would become a Liquidation Event.
-20-
<PAGE> 22
<PAGE> 23
"Unpaid Balance" of any Receivable means at any time the unpaid
principal amount thereof.
"Yield Reserve" means, at any time, an amount equal to the product of (i)
the Net Pool Balance on such day, times (ii) the sum of (A) the LIBOR for the
current Settlement Period, plus (B) 2.50%, plus (C) the Servicer's Fee Rate,
divided by (iii) 12, times (iv) 2, times (v) the most recently calculated
Turnover Rate.
B. Other Terms. All accounting terms not specifically defined herein shall
be construed in accordance with GAAP. 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.
C. Computation of Time Periods. Unless otherwise stated in this Agreement,
in the computation of a period of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding".
D. Interpretation. In each Transaction Document, unless a clear contrary
intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by the Transaction Documents, and reference to a Person in a
particular capacity excludes such Person in any other capacity or
individually;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Transaction
Document), document or instrument means such agreement, document or
instrument as amended, supplemented or modified and in effect from time to
time in accordance with the terms thereof and, if applicable, the terms of
the other Transaction Documents and reference to any promissory note
includes any promissory note which is an extension or renewal thereof or a
substitute or replacement therefor; and
(v) reference to any Applicable Law means such Applicable Law as
amended, modified, codified, replaced or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations
promulgated thereunder and reference to any section or other provision of
any Applicable Law means that provision of such Applicable Law from time
to time in effect and constituting the substantive amendment,
modification, codification, replacement or reenactment of such section or
other provision.
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> SEP-26-1998
<CASH> 162,225
<SECURITIES> 0
<RECEIVABLES> 289,472
<ALLOWANCES> 5,935
<INVENTORY> 151,952
<CURRENT-ASSETS> 619,959
<PP&E> 311,308
<DEPRECIATION> 199,300
<TOTAL-ASSETS> 743,168
<CURRENT-LIABILITIES> 477,699
<BONDS> 95,000
0
0
<COMMON> 943
<OTHER-SE> 119,475<F1>
<TOTAL-LIABILITY-AND-EQUITY> 743,168
<SALES> 1,680,679
<TOTAL-REVENUES> 1,680,679
<CGS> 1,482,751
<TOTAL-COSTS> 1,482,751
<OTHER-EXPENSES> 174,311<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,109
<INCOME-PRETAX> 3,444
<INCOME-TAX> 2,269
<INCOME-CONTINUING> 1,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,175
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.02
<FN>
<F1>OTHER SE INCLUDES ADDITIONAL PAID-IN CAPITAL OF $878,019 UNREALIZED GAIN ON
INVESTMENTS IN EQUITY SECURITIES OF $13,234, AND ACCUMULATED DEFICIT OF .
$771,778.
<F2>OTHER EXPENSES INCLUDE RESEARCH AND DEVELOPMENT OF $110,285 AND SELLING,
GENERAL AND ADMINISTRATIVE COSTS OF $52,958, AND STOCK COMPENSATION EXPENSE OF
$11,068.
</FN>
</TABLE>
